In this article, we will first discuss the key highlights of global asset management firm VanEck’s “Cryptocurrency Monthly Report August 2024,” then take a closer look at VanEck’s detailed analysis of why Ethereum (ETH) has been underperforming compared to other layer-1 blockchains.
Key highlights from VanEck’s August 2024 report
According to VanEck, August 2024 was a tough month for the cryptocurrency market overall. Bitcoin (BTC) fell 11%, Ethereum (ETH) fell 24%, and Solana (SOL) fell 21%, while traditional markets such as the S&P 500 and Nasdaq rose 2% and 1%, respectively. VanEck also noted that the market capitalization of Smart Contract Platform (SCP) fell 12%, causing a significant decline in investor sentiment.
Van Eck pointed to macroeconomic events triggered by yen carry trades as the main factor in the cryptocurrency market flash crash on August 5. During the crash, Bitcoin briefly fell to $49,000 and Ethereum to $2,100. By the end of the month, Bitcoin had recovered to $58,000, while Ethereum was stuck around $2,500. Van Eck also noted that Bitcoin volatility spiked 48% and Ethereum rose 52%, leading to increased market uncertainty.
Blockchain activity also took a hit, with VanEck reporting a 10% drop in daily active users, a 12% drop in fees, and a 4% drop in decentralized exchange (DEX) trading volume. Adding to the selling pressure, VanEck highlighted an influx of 186,000 BTC into exchanges, likely to be sold off due to bankruptcy-related dividends and actions by the US and German governments.
Another factor weighing on the market, according to VanEck, is regulatory pressure in the U.S. The SEC’s Wells Notice to OpenSea, one of the largest NFT platforms, raised concerns that tighter regulation could continue, especially in the absence of political change such as the election of President Trump.
VanEck also reported on the controversy surrounding Wrapped Bitcoin (WBTC), as a new partnership between Bitgo and Justin Sun has unsettled the crypto community. MakerDAO passed a governance proposal that would have prohibited WBTC from being used as collateral for the DAI stablecoin. In response, Coinbase launched its own Wrapped Bitcoin (wbBTC).
Regarding Solana, VanEck noted that the price has fallen 21%, mainly due to fraudulent activity related to meme coins. However, there have been some positive developments for Solana, including the launch of two ETFs in Brazil and the growing use of PayPal’s PYUSD stablecoin on the network. However, VanEck said that Solana’s blockchain size of 150 terabytes remains a challenge, as it is costly to store and query historical data.
Finally, VanEck mentioned PolyMarket, a decentralized prediction market that gained attention in August due to its growing popularity in political prediction markets. Nevertheless, concerns about potential market manipulation remain.
Ethereum Struggles: VanEck’s Deep Dive
VanEck’s report details Ethereum’s continued underperformance compared to other layer-1 blockchains. Ethereum’s 62% annualized return since the start of the bull market in 2023 is significantly lower than Bitcoin’s 138% and Solana’s astounding 624%. VanEck attributes this poor performance to Ethereum’s scalability issues and the rise of faster, more efficient competitors.
According to VanEck, Ethereum’s transaction throughput is around 15 transactions per second (TPS), which pales in comparison to newer blockchains like Solana and Aptos, which can handle thousands of TPS. Additionally, Ethereum’s sequential transaction processing creates congestion during times of high demand, limiting its usability. VanEck suggests that this poor performance is driving developers and projects away from Ethereum and towards more advanced blockchains.
Van Eck highlighted that Ethereum’s share of blockchain fees has dropped dramatically from 86% in 2022 to just 33% in 2024. Ethereum’s dominance in decentralized exchange (DEX) trading volume has also dropped from 42% to 29%. As a result, Van Eck said, Ethereum is no longer the leading platform for speculative trading, with other chains on the rise.
Ethereum attempted to solve its scalability issues by moving transactions to the Layer 2 blockchain (L2), but VanEck’s report points out that this solution creates a new problem: Layer 2 siphons off Ethereum’s transaction fees and other value creation mechanisms, reducing Ethereum’s own revenue. VanEck noted that the share of transaction fees (ETH+L2) in the Ethereum ecosystem has fallen from 98% to 89% since 2022, indicating that L2 is cannibalizing Ethereum’s economic activity.
Additionally, Van Eck explained that Ethereum’s recent EIP-4844 upgrade, which created new data lanes for L2 transactions, further lowered transaction costs across the network, leading to lower revenue. Van Eck observed that over the past six months, Ethereum fees have fallen 89%, far outpacing Bitcoin’s 13% drop, while Tron and Solana fees have increased 125% and 114%, respectively.
Further exacerbating these issues, VanEck noted that several new token types within the Ethereum ecosystem, such as staking and re-staking tokens, account for roughly 11% of Ethereum’s value, bringing additional competition and taking value away from Ethereum, contributing to its declining performance.
VanEck’s analysis paints a clear picture of Ethereum’s struggles, highlighting scalability limitations, competition from faster blockchains, and the unintended consequences of relying on layer-2 solutions.
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