Ethereum's controversy: Is it a cryptocurrency?

Author: AJC, Research Manager at Messari; Source: X, @AvgJoesCrypto; Translated by: Shaw, Jinse Finance

Among all major cryptocurrency assets, Ethereum (ETH) has sparked the most intense debate. While Bitcoin's (BTC) dominance as a cryptocurrency is largely undisputed, Ethereum's position is far from settled. For some, Ethereum is the only trustworthy non-sovereign currency asset besides Bitcoin; for others, it represents a business with declining revenue, shrinking profit margins, and ongoing competition from faster, lower-cost L1 payment services.

This debate seemed to reach its climax in the first half of this year. In March, XRP's fully diluted valuation (FDV) briefly surpassed Ethereum's (notably, Ethereum is fully circulating, while XRP's circulating supply represents only about 60% of its supply). On March 16th, Ethereum's FDV was $227.65 billion, while XRP's FDV reached $239.23 billion, something almost no one had predicted a year earlier. Subsequently, on April 8, 2025, the ETH/BTC ratio fell below 0.02 for the first time since February 2020. In other words, Ethereum's excess returns relative to Bitcoin in the previous cycle had completely disappeared. At this point, market sentiment towards Ethereum had fallen to its lowest point in years. Worse still, price action was only part of the problem. With the rise of competing ecosystems, Ethereum's share of L1 network transaction fees continued to decline. Solana regained its footing in 2024, and Hyperliquid emerged in 2025, together driving Ethereum's fee share down to 17%, ranking fourth among L1 exchanges—a dramatic drop from its top position a year earlier. Transaction fees aren't everything, but they clearly reflect the direction of economic activity, and Ethereum now faces the most intense competitive landscape in its history. However, history shows that the most significant reversals in cryptocurrency often begin when market sentiment is at its most pessimistic. When Ethereum was shunned as a failing asset, most of its supposed "failure" factors were already priced in. In May 2025, signs of optimism emerged, indicating overconfidence in the bear market. During this period, both the ETH/BTC ratio and the Ethereum/USD price began to reverse dramatically. The ETH/BTC ratio climbed from a low of 0.017 in April to 0.042 in August, a surge of 139%; while Ethereum itself rose 191% during the same period, from $1646 to $4793. This upward momentum finally peaked on August 24, with Ethereum reaching an all-time high of $4946. Following this repricing, Ethereum's overall trend clearly shifted towards renewed strength. Changes in the leadership of the Ethereum Foundation and the emergence of a digital asset reserve focused on Ethereum brought a confidence that had been lacking for most of the previous year. Prior to this surge, the difference between Bitcoin and Ethereum was most evident in their respective exchange-traded fund (ETF) markets. When Ethereum spot ETFs launched in July 2024, inflows were very weak. In their first six months, they raised only $2.41 billion, a paltry figure compared to the record performance of Bitcoin spot ETFs. However, with Ethereum's recovery, concerns about ETF liquidity have completely reversed. Over the past year, Ethereum spot ETFs saw inflows of $9.72 billion, while Bitcoin ETFs saw inflows of a staggering $21.78 billion. Considering Bitcoin's market capitalization is nearly five times that of Ethereum, the difference in inflows is only 2.2 times, far lower than many expected. In other words, after adjusting for market capitalization, demand for Ethereum ETFs surpassed that for Bitcoin, contradicting previous claims of a lack of institutional investor interest in Ethereum. In some cases, Ethereum even completely outperformed Bitcoin. From May 26 to August 25, Ethereum ETFs saw inflows of $10.2 billion, exceeding Bitcoin's $9.79 billion during the same period, marking the first significant shift in institutional investor demand towards Ethereum. From the perspective of ETF issuers, BlackRock further solidified its dominant position in the ETF market, holding 3.7 million ETH by the end of 2025, representing 60% of the total Ethereum spot ETF market share. This figure represents a significant increase of 241% from 1.1 million ETH at the end of 2024, outpacing all other issuers in annual growth rate. Overall, Ethereum spot ETFs held 6.2 million ETH at the end of 2025, approximately 5% of the total supply. Behind Ethereum's strong rebound, the most important development is the rise of the Ethereum Digital Asset Reserve (DAT). DAT has created an unprecedentedly stable and continuous source of demand for Ethereum, anchoring it in a way that no narrative or speculative activity could achieve. If Ethereum's price movement marked a clear turning point, then the accumulation of DAT represents a deeper structural shift that facilitated this turnaround. DAT has had a significant impact on the price of Ethereum, accumulating 4.8 million ETH during 2025, representing 4% of the total supply. The largest accumulation of Ethereum DAT is by Tom Lee's Bitmine (BMNR). Bitmine, a former Bitcoin mining company, began converting its reserves and capital into ETH in July 2025. Between July and November, Bitmine purchased 3.63 million ETH, making it the absolute leader in DAT market share, accounting for 75% of all DAT holdings. Despite Ethereum's strong rebound, it eventually cooled down. By November 30, the price of Ethereum had fallen from its August high to $2,991, even well below the previous all-time high of $4,878 in the previous cycle. Ethereum is currently in a much better position than in April, but this rebound has not eliminated the structural concerns that initially triggered bearish sentiment. In fact, the debate surrounding Ethereum has intensified. On the one hand, Ethereum exhibits many of the same characteristics as Bitcoin when it rose to prominence as a currency. ETF inflows are no longer weak. DAT reserves have become a consistent source of demand. And, perhaps most importantly, a growing number of market participants view Ethereum as distinct from other L1 tokens, with some now considering it an asset within the same monetary framework as Bitcoin. However, the headwinds that dragged down Ethereum's price earlier this year have not yet subsided. Ethereum's core fundamentals have not fully recovered. Its L1 fee share continues to be pressured by strong competitors such as Solana and Hyperliquid. Underlying transaction activity remains well below the peak of the previous cycle. Despite Ethereum's significant rebound, Bitcoin remains well above its all-time high, while Ethereum remains below it. Even during Ethereum's strongest months, a significant portion of holders viewed the rally as an opportunity to cash out rather than a validation of its long-term monetary theory. The core issue in this debate isn't whether Ethereum has value, but rather how Ethereum's core asset, ETH, accumulates value from the Ethereum network. Last cycle, it was widely believed that ETH's value would derive directly from Ethereum's success. This was a key part of the "ultrasonic money" argument: Ethereum would be so useful that large amounts of ETH would be burned, thus providing a clear and mechanically guaranteed source of value for the asset. Now, we can say with considerable confidence that this is not the case. Ethereum transaction fees have plummeted with no signs of recovery, and its biggest growth driver—real-world assets (RWAs) and institutional investors—primarily uses the US dollar as its base currency asset, not ETH. ETH's value will now depend on how indirectly it benefits from Ethereum's success. But this indirect benefit is far less certain. It relies on the hope that as the Ethereum ecosystem becomes increasingly important, more users and capital will choose ETH as both a cryptocurrency and a store of value. However, unlike direct, mechanical value accumulation, this is not guaranteed. It depends entirely on social preferences and collective beliefs, which is not inherently flawed (after all, Bitcoin's value accumulation is also based on this). But it does mean that Ethereum's appreciation is no longer linked to Ethereum's own economic activity in a deterministic way. All of this brings the controversy surrounding Ethereum back to its core contradiction. Ethereum may indeed be accumulating a monetary premium, but this premium remains consistently lower than that of Bitcoin. The market is again viewing Ethereum as a leveraged embodiment of Bitcoin's monetary theory, rather than an independent monetary asset. Throughout 2025, the 90-day rolling correlation coefficient between ETH and BTC hovered between 0.7 and 0.9, while its rolling beta coefficient soared to multi-year highs, sometimes even exceeding 1.8. Ethereum is now more volatile than Bitcoin, but it still relies on Bitcoin. This is a subtle but extremely important distinction. Ethereum's current monetary relevance stems from the continued strength of Bitcoin's monetary narrative. As long as the market continues to believe that Bitcoin is a non-sovereign store of value, some market participants will be willing to extend this belief to Ethereum. If Bitcoin continues to strengthen in 2026, Ethereum is fully capable of catching up. Ethereum DATs are still in their early stages of development; to date, they have primarily facilitated ETH accumulation through the issuance of common stock. However, in a new cryptocurrency bull market, these entities may explore other capital formation strategies, similar to those used by Strategy to expand its Bitcoin investments, including convertible bonds and preferred stock. For example, a DAT like BitMine could issue low-interest convertible bonds and high-yield preferred stock, using the proceeds directly to purchase ETH, which could then be staked to generate continuous returns. Under reasonable assumptions, staking income could partially offset fixed interest and dividend expenses, allowing the company's treasury to continue accumulating ETH in favorable market conditions while increasing balance sheet leverage. Assuming a full Bitcoin bull market recovery, this potential "second life" for Ethereum DATs could become an additional support for ETH's higher beta relative to Bitcoin in 2026. Ultimately, the market will still link Ethereum's monetary premium to Bitcoin's. Ethereum is not currently a self-sufficient monetary asset with an independent macroeconomic foundation; instead, it is increasingly becoming a secondary beneficiary of Bitcoin's monetary consensus. Ethereum's recent resurgence reflects a segment of investors willing to view it as an alternative to Bitcoin, rather than a typical L1 token. However, even with Ethereum's relative strength, market confidence in it is inextricably linked to the continued strength of Bitcoin's own narrative. In short, Ethereum's monetary story is no longer fragmented, but it's far from settled. Under the current market structure, given Ethereum's higher beta relative to Bitcoin, it could appreciate significantly if Bitcoin's theoretical trajectory continues to develop, with structural demand from DAT and corporate funding providing genuine upside potential. However, in the foreseeable future, Ethereum's monetary value will still depend on Bitcoin. Unless ETH's correlation and beta with BTC decrease (which it has never achieved), Ethereum's premium will continue to fluctuate in Bitcoin's shadow.