You're seeing the headlines, right? ETH ETFs are surging! BlackRock is pushing them hard! And as all the big players are clamoring to get in, hoping to find the next Bitcoin-level moonshot. But wait a minute, though. Beneath the surface of these shiny new ETFs lies a fundamental flaw that most people are completely missing: Ethereum's tokenomics.
Scarcity? More Like Abundance Is King
Bitcoin’s beauty is in its exquisitely elegant, capped supply 21 million, that's it. Demand goes up, price goes up. Basic economics. Ethereum? Not so much.
Let's be blunt: Ethereum prints more ETH. Fine, the new EIP-1559 burn mechanism is in place, but that’s not nearly sufficient, particularly in times of low network activity. In those times, the issuance rate exceeds the burn rate. We’re doing the opposite—adding to the supply, diluting the value. It’s the equivalent of pouring a firehose worth of water into an already overflowing swimming pool.
Bitcoin's scarcity is designed in. Ethereum appears to have scarcity as an afterthought. To have that kind of volatility, and that’s a huge problem when you’re trying to create a store of value. It’s the difference between a rare artist-signed, limited edition print and a mall-store knock-off poster. Which one holds its value better?
| Scenario | ETH Issued (per day) | ETH Burned (per day) | Net Change |
|---|---|---|---|
| High Activity | 1,000 | 1,200 | -200 |
| Low Activity | 1,000 | 500 | +500 |
Think about the incentives. Validators receive ETH on the network as rewards for securing the network and produce their own rewards. Great, right? Except they have real-world expenses: server costs, electricity bills. So what do they do with that newly created ETH? They sell it.
Validators' Dilemma: Sell or Starve?
This is important because developers building on Ethereum are usually funded in ETH. They need to cash out that ETH into fiat in order to pay salaries and infrastructure costs. They sell it.
Users are sent ETH from smart contracts and other on-chain activities. Need to pay rent? They sell it.
The whole purpose of the entire system is to get ETH in as many hands as possible. There’s an enormous financial motivation to change it to something else immediately. It’s really a sell pressure, a sort of perpetual headwind against price appreciation.
This isn't some theoretical argument. Look at the data. Despite this upside from the ETF inflows, ETH has lagged behind Bitcoin by a considerable margin this year. Why? Since the ETFs are mostly a pass-through, from institutions to these sellers. The revenue doesn’t stick around – it comes in, it gets committed and it goes right back out the door. It’s better than nothing, but it’s a revolving door—not a long-term investment. When institutions purchase up ETH, it adds significant pressure on demand and buying up ETH. That new demand is swiftly offset by miners and stakers selling their coins to fund their operations and allow them to live.
This is why BlackRock is advocating the ETH ETF – a good diversification move to diversify your exposure. They know tokenomics matter, and ETH’s aren’t worth holding.
Ethereum’s ongoing upgrades, including the Merge, have all been about making the chain more useful, lowering fees, and speeding up scalability. All good things, right? Maybe. They still haven’t solved the basic tokenomics issue. In fact, if anything, some would argue they have worsened this problem by incentivizing functionality vs. scarcity. This is a mistake.
Utility Now, Value Later? A Risky Bet
It would be as if constructing a majestic, smart maze of connected corridors atop a beach. POS fancy devices and/or low-cost systems will never make up for a shoddy, eroded, or porous base. Without strength in the underlying foundation, the whole house will eventually fall apart.
Ethereum is counting on the fact that by adding utility, they will create enough demand to outstrip the inflationary tokenomics over time. It's a risky bet. A bet that assumes that ETH's utility will be so amazing that it will outweigh the fact that there's no scarcity.
So, here's the unpopular opinion: don't buy the ETH ETF. At least, not in terms of achieving Bitcoin-type returns. The tokenomics are broken at a structural level, the incentives are totally misaligned and the upgrades focus on unimportant aspects first.
It will certainly provide some near-term benefits, personally I think the long-term prospects are dim. You’re basically purchasing an instrument built to be traded and not kept.
The Contrarian Conclusion: Don't Buy the Hype
Look, I get it. The crypto world is exciting. Everyone wants to get rich quick. That’s the thing – smart investing requires critical thinking and discernment, not blind faith. Don’t let the hype from the potential ETH ETF distract you from what’s really there.
Join us as we unpack the murky issues behind the crypto curtain. Sign up for my newsletter, Crypto is Easy, to learn all about it! Because, quite frankly, it doesn’t have to be this hard.
Look, I get it. The crypto world is exciting. Everyone wants to get rich quick. But smart investing requires critical thinking, not blind faith. Don't let the hype of the ETH ETF blind you to the underlying realities.
And if you want to learn more about these hidden problems in the crypto world, subscribe to my newsletter, Crypto is Easy. Because let's be honest, it shouldn't be this complicated.
