After a correction phase in the recent bull market, the ETH price has once again surpassed 3900 USD. Looking back at Ethereum's development over the past year, there are many complex factors and emotions; on one hand, the Cancun upgrade was successfully completed and the spot ETF was officially approved, signaling a new bullish face in terms of technology and fundamentals; on the other hand, with Bitcoin, SOL, and BNB continuously breaking historical highs, the price of ETH still hovers around the 4000 USD mark.

From the price chart of ETH this year, it can be seen that Ethereum has experienced three major phases this year, and the rise in each of these three phases corresponds to different reasons. At the beginning of the year, the approval of Bitcoin's spot ETF led to a rise in Ethereum's price, which briefly exceeded 4100 USD, but at the end of March, it began to decline along with the overall market. Additionally, due to the strong surge of SOL and its ecosystem, Ethereum's ecosystem faced significant liquidity outflows.

In May, after the approval of Ethereum's spot ETF, the price briefly surged; however, demand did not match the strength seen with Bitcoin. The market's initial reaction to the launch of Ethereum's ETF was negative, as speculative investors who had purchased Grayscale's Ethereum Trust anticipating its conversion into an ETF took profits, resulting in an outflow of 1 billion USD, which placed downward pressure on Ethereum's price. Furthermore, ETH's narrative being more inclined towards innovative technology products compared to BTC's 'digital gold' has made it less appealing to traditional markets, and the SEC's ban on Ethereum's spot ETF engaging in staking functions has objectively diminished its attractiveness.

Following this, the Ethereum Foundation, re-staking ecosystem, and roadmap disputes arose in succession, ushering in a dark period for Ethereum.

In November, as the dust from the U.S. election settled, the pro-crypto Republican Party and Trump brought stronger confidence and liquidity injection to the entire crypto ecosystem, leading to Ethereum's third wave of growth this year. This rise was different from the past; institutions entered the market clearly, and the improvement in liquidity fundamentals is signaling to us where institutions recognize and remain bullish; thus, Ethereum is destined to continue its original vision as a 'world computer.'

Improvement in liquidity fundamentals.

Since December, Ethereum's spot ETF has seen over 2.2 billion USD in net inflow for half a month. The ETF Store's president, Nate Geraci, stated on social media that advisors and institutional investors are just beginning to pay attention to this area.

In the third quarter of this year, banks such as Morgan Stanley, JPMorgan, and Goldman Sachs significantly increased their holdings of Bitcoin ETFs, with quarterly holdings nearly doubling. However, their investment scope is not limited to Bitcoin, as indicated by the latest Form 13F documents, showing these institutions have also begun purchasing Ethereum spot ETFs since then.

Additionally, in the previous two quarters, the Wisconsin Investment Board and the Michigan Retirement System in the USA purchased Bitcoin spot ETFs, with Michigan further purchasing over 13 million USD worth of Ethereum spot ETFs in the third quarter. This indicates that pension funds, symbolizing a low risk preference and a long-term investment perspective, not only recognize Bitcoin as a digital store of value but also value Ethereum's growth potential.

At the inception of the Ethereum spot ETF, JPMorgan pointed out in a report that the demand for Ethereum spot ETFs would be far lower than for Bitcoin spot ETFs. However, the report predicts that, by the end of this year, Ethereum spot ETFs could attract up to 3 billion USD in net inflow, and if staking is allowed, this figure could rise to as high as 6 billion USD.

Jay Jacobs, head of Blackrock’s U.S. thematic and active ETFs, stated at the "ETFs in Depth" conference that "our current exploration of Bitcoin, especially Ethereum, is just the tip of the iceberg; only a very small number of clients hold (IBIT and ETHA), so our current focus is in this area rather than launching new altcoin ETFs.

In a survey report by Blockworks Research, a vast majority (69.2%) of respondents currently hold ETH, with 78.8% being investment companies or asset management firms. This suggests that, driven by yield generation and contributions to cybersecurity, institutions' willingness to participate in ETH staking has reached a critical scale.

Institutions are actively participating in ETH staking, but the level and method of participation vary. Regulatory uncertainty has led different parties to adopt varying attitudes; some institutions are proceeding cautiously while others are less concerned, and institutional participants have a high level of awareness regarding the operational aspects and risks associated with staking.

Trend Reversal

Since the collapse of FTX, Coinbase, Kraken, Ripple, and other exchanges have faced severe crackdowns from the SEC and other U.S. regulatory agencies, preventing many crypto projects from even opening accounts at mainstream banks in the USA. Moreover, traditional financial institution investors, who entered the market during the previous bull run due to DeFi, suffered huge losses, as large funds such as Toma Bravo, Silver Lake, Tiger, and Cotu not only faced setbacks on FTX but also invested at high valuations in certain crypto projects that failed to deliver on their grand promises, with funds still not having flowed back.

In the second half of 2022, many DeFi projects were forced to migrate outside of the USA. According to Alliance DAO co-founder qw, "Two years ago, about 80% of compliant crypto startups were located in the USA, however, this percentage has continued to decline since then, and is currently only about 20%."

However, on November 6, Trump's victory illuminated the green light that the American Financial system had been waiting for.

Trump saves the crypto sphere.

Trump's victory undoubtedly cleared the regulatory doubts for Institutions' adoption.

After establishing the Department of Government Efficiency, gathering a series of Wall Street financial elites such as Musk, Peter Thiel, and Marc Andreessen under its umbrella, and appointing Paul Atkins as SEC Chairman, Trump also appointed PayPal co-founder David Sacks as the "White House head of AI and cryptocurrency affairs." A series of measures indicates that Trump will create a government with relaxed crypto regulation.

Related reading: "The White House Will Open the Era of Crypto-friendliness: Listing the 'Crypto Dream Team' Under Trump's Leadership"

Analysts at JPMorgan indicated that several stalled cryptocurrency bills may quickly gain approval following Trump's administration, including the Financial Innovation and Technology Act of the 21st Century (FIT21), which could provide much-needed regulatory clarity for the crypto industry by clearly delineating the regulatory roles of the SEC and CFTC. They also noted that as the regulatory framework becomes clearer, the SEC's strategy of increased enforcement may evolve into a more collaborative approach, and the restriction on banks holding digital assets under Staff Accounting Bulletin No. 121 (SAB 121) may be repealed.

High-profile lawsuits against companies like Coinbase may also see easing, settlements, or even dismissals. Regulatory notices sent to companies such as Robinhood and Uniswap could be reconsidered, potentially reducing litigation risks for the broader crypto industry.

In addition to departmental and legislative reforms, Trump's team is considering significant cuts, mergers, or even the elimination of major banking regulatory agencies in Washington. Informed sources disclosed that Trump's advisors asked candidates for potential banking regulatory positions about whether some government efficiency department personnel could abolish the Federal Deposit Insurance Corporation (FDIC). Additionally, Trump's advisors inquired about potential candidates for the FDIC and the Office of the Comptroller of the Currency. Furthermore, they proposed plans to merge or completely reform the FDIC, the Office of the Comptroller of the Currency, and the Federal Reserve.

As policy dividends gradually unfold, larger-scale institutional funds in the USA are expected to re-enter the crypto market.

DeFi Revival in Progress

More robust capital, including family offices, endowment funds, and pension plans, will not only invest in Ethereum spot ETFs but will also re-enter the previously validated DeFi sector.

Compared to 2021, the total supply of stablecoins has reached its highest level, and in the more than a month since Trump's election victory, the total supply of stablecoins has increased by nearly 25 billion USD, with the current total market value of stablecoins reaching 202.2 billion USD.

As a leader among crypto-listed companies in the USA, Coinbase has made achievements in the DeFi field this year, contributing politically and as the largest crypto ETF custodian, while also launching cbBTC.

Due to cbBTC facing the same custody and counterparty risks as most Bitcoin ETFs, some traditional financial institutions may reassess whether to continue paying fees to hold Bitcoin ETFs and instead shift towards participating in the DeFi ecosystem at almost no cost. This shift could lead to inflows for market-tested DeFi protocols, especially when the yields offered by DeFi are more attractive than those in traditional finance.

Another significant DeFi sector in this cycle is RWA. In March this year, BlackRock entered the RWA space in a high-profile manner by issuing the tokenized fund BUIDL (BlackRock USD Institutional Digital Liquidity Fund) in collaboration with the US tokenization platform Securitize. Capital giants like Apollo and Blackstone, which control large pools of funds, are also beginning to prepare to enter this market, bringing a massive injection of liquidity.

After the Trump family's launch of a DeFi project, compliant DeFi has been a hot topic of discussion. Established Ethereum blue-chip DeFi projects like Uniswap, Aave, and Lido saw immediate price reactions and increases after Trump's victory, while up-and-coming DeFi projects like COW, ENA, and ONDO also reached new highs.

Meanwhile, Trump's crypto DeFi project WLFI has recently been trading Ethereum-based tokens very frequently. After exchanging 5 million USDC for 1,325 ETH over several transactions, its multi-signature address separately purchased 10 million USD in ETH, 1 million USD in LINK, and 1 million USD in AAVE. Recent news of whales increasing their holdings of ETH suggests that both institutions and whale accounts are refocusing on the Ethereum ecosystem.

WLFI multi-signature address holding information.

Recently, both new and old projects in the DeFi track have shown performance in terms of price that speaks for itself. Currently, the DeFi's TVL is approximately 100 billion USD, while the total value of cryptocurrencies and related assets is around 4 trillion USD. However, only 2% of the funds are truly active in the DeFi field, which is still very small compared to the overall scale of the cryptocurrency market. This indicates that with the warming regulatory climate, DeFi still has enormous growth potential.

Aave is a typical beneficiary of this round of 'capital inflow,' as its price broke through before Trump's victory. Since then, the TVL and income have shown explosive growth: TVL surpassed the historical high of 22 billion USD in October 2021; the token price rose from a low of 80 USDT within the year, breaking the March peak of 140 USDT in early September and accelerating upwards by the end of November; the protocol's total daily income exceeded the second-highest peak in September 2021, with weekly income setting a new historical high.

Despite Aave recently upgrading to V4, the technical innovations may not be sufficient to support such a large-scale increase, and the regulatory and capital-driven motivations are evidently more important. This push may even spill over to the NFT sector, which received similar favor from institutions in the previous cycle.

The Future of Ethereum

However, Ethereum faced a series of controversies and discussions regarding ecological development in the middle of this year. With the rise of Solana, new and old public chains are starting to capture Ethereum's developers and user base, and the ecosystem seems to be shaking. Ethereum seems to have forgotten its original goal. As the first blockchain to create smart contracts, Ethereum successfully attracted major institutional investors to pay for its services in the previous cycle through its first-mover advantage. Whether it's DeFi, gaming, NFT, or Metaverse, none can escape the Ethereum ecosystem, whose idea of being a 'world computer' has deeply ingrained in people's minds.

Although the fundamental liquidity of Ethereum has shown optimistic improvements, from Ethereum's own perspective, its on-chain data indicators, such as daily transaction count, gas fees, and active address count, have not significantly increased. This indicates that Ethereum's on-chain activity has not risen in tandem with its price, and there remains excess block space.

Ethereum Gas Fee Levels

In the past few years, Ethereum has focused on building the infrastructure for Cryptos, providing the market with a large amount of cheap block space. This measure, on one hand, improves the access performance of Dapps to blocks and reduces the transaction costs of L2 expansion solutions. On the other hand, due to insufficient market liquidity and sluggish transaction demand, the large block space of Ethereum has not been fully utilized.

However, in the long run, this is not really a problem. As mentioned earlier, Institutional funds are gradually flowing back, even starting to create exclusive blockchain use cases. For Ethereum, which has security and flexible architecture, the B2B aspect is its advantage. It not only has overwhelming advantages in security but also supports numerous EVM projects, providing developers with an option that is almost 'impossible to fire.'

The long-term value of Ethereum will depend on the scarcity of its block resources, that is, the actual and sustained demand of the world for Ethereum block settlement. As Institutions and applications continue to flow in, this scarcity will undoubtedly become increasingly prominent, thus laying a firmer foundation for Ethereum's value. Ethereum is a world computer for Institutions; starting from DeFi, Institutions will face the issues of block surplus and roadmap disputes in the future.

At the beginning of December, Ethereum researcher Jon Charbonneau wrote a long article analyzing why Ethereum needs a clearer 'Polaris' direction. He also suggested gathering Ethereum's ecological strength around this 'world computer' concept, similar to Bitcoin's 'digital gold' and Solana's 'on-chain Nasdaq.'

Ten years have passed, and Ethereum is no longer in the startup phase; the future of Ethereum is already clearly visible for the next decade.