Hedge Fund CIO Declares ETH ‘Totally Dead’! Is Ethereum’s $225 Billion Empire Crumbling?

The proposition of Ethereum investment as a viable long-term strategy has been called into question recently by Quinn Thompson, CIO of Lekker Capital. Thompson unequivocally asserted that Ethereum is “totally dead” as an investment vehicle, citing falling transaction activity, slowing user growth, and substantially declining revenue from fees. As further endorsed by on-chain data, Thompson’s comments have sparked conversations regarding Ethereum’s economic model, factors that impact Layer 2 (L2) solutions, and whether Ethereum investment still holds promise. To be clear, is it really the time to dismiss Ethereum altogether? Let’s examine the data and arguments that support this conversation.

On-Chain Metrics: What the Data Says About Ethereum’s Growth

Recent statistics from The Block reveal some concerning trends in Ethereum’s network usage. Daily transactions, using a 7-day moving average (7DMA), have leveled off from their peak in 2021. Daily and monthly active addresses have also stalled, which is concerning for the sustainability of Ethereum’s adoption. New address creation has struggled to keep up as well, which is another growing measure. This slowdown means that Ethereum’s user growth hasn’t been enough to support its enormous $225 billion valuation. So, does the data suggest that Ethereum is becoming less attractive as an investment?

Ethereum on-chain metrics, Source: X @qthomp

Layer 2 Solutions: Helping Ethereum or Hurting Its Value?

A key part of the argument focuses on the Layer 2 (L2) scalability initiatives and their impact on Ethereum investment. Nic Carter of Castle Island Ventures believes that L2s are draining value from Ethereum’s primary chain, which in turn is stifling ETH from accruing value despite the robust network effects being exhibited. With multiple L2 tokens and staking protocols arriving on the scene, some market participants are concerned that ETH is no longer the main beneficiary of Ethereum’s expanding ecosystem, raising doubts about its long-term investment potential.

In contrast, Omid Malekan, an academic at Columbia Business School, believes that L2s are key to blockchain scalability, and their existence doesn’t necessarily threaten Ethereum investment or its long-term value. The question becomes: Are L2s a benefit to Ethereum’s future or just an unexpected drain on value?

ETH Tokenomics: A Flawed Model or a Deflationary Strength?

Thompson also takes issue with the economic model of Ethereum, stating that the “ecosystem is doing well,” but ETH is not capturing enough value. His analogy comes in the form of an oil industry reference, suggesting that while there is utility in the Ethereum network, it does not always command a premium for holders of ETH. Scott Johnsson of VB Capital, countered with the argument that pricing for ETH would appreciate given the condition of increasing network activity, then he too presented his analogy with a variant assumption that ETH would benefit from deflation of its available supply. This raises the question: Can that deflationary mechanism and low transaction rates be sustained in the future?

Conclusion: Should Investors Be Worried About Ethereum?

Speculation around Ethereum investment remains a tenuous proposition. The on-chain data presents a mixed picture; transaction activity and user growth have slowed considerably, yet Ethereum’s footprint in DeFi and smart contracts remains strong. Layer 2 solutions continue to expand, prompting investors to question ETH’s long-term ability to maintain value while simultaneously enhancing its scalability.

Whether Ethereum investment can be a viable long-term strategy will depend on the network’s ability to adapt to these developments and validate its economic model. As of now, ETH is trading around $1,780, with analysts offering mixed ETH price predictions, some expecting a recovery driven by deflationary tokenomics, while others warn of further declines if network activity remains stagnant. Although opinions are split, one thing is clear: Ethereum’s story is far from over.