ETHA: Excess Liquidity Tailwind Has Slowed, Potentially Ending Summer Rally

Summary The Ethereum ETF ETHA has surged in popularity, but retail investor demand is now plateauing as liquidity in the financial system dries ￰0￱ offers cheaper and more efficient exposure to Ethereum than competitors, but short-term flows and technicals suggest a bearish outlook through year-end. ETH's utility as a smart contract platform is notable, yet most network activity remains speculative and tied mostly to crypto trading (stablecoins, etc.) rather than real-world use cases. I am bearish on ETHA for the short term due to waning liquidity and momentum, but maintain a neutral long-term view as institutional adoption could shift the ￰1￱ cryptocurrency market has had a great ￰2￱ ( BTC-USD ) is up to about $115K, rising ~23% this year, doubling in value since last ￰3￱ ( ETH-USD ) has performed even better this year, gaining by about 32%, outperforming Bitcoin over recent months with a staggering 130% gain over the past six ￰4￱ investor interest in Ethereum is very high, particularly for the newer Ethereum ETF ( ETHA ), which launched last ￰5￱ ETH soared, ETHA's outstanding units have risen by roughly 220% since early ￰6￱ metric is measured by dividing its AUM (which is almost $16B) by its price: Data by YCharts To me, this chart highlights a clear ￰7￱ investor demand for ETHA rose dramatically over the past three months, but has since halted.

There's been a small reversal in outstanding units, though it is not extended enough to indicate falling ￰8￱ is the largest Ethereum ETF, with about three times the assets as Grayscale's Ethereum ETF ( ETHE ). ETHE is older, but ETHA is, in my view, clearly the better fund, given its expense ratio is 0.25%, while ETHE's is 2.5% . ETHE provides cheap exposure to Ethereum, avoiding the higher transaction fees and wallet complexities often seen in direct cryptocurrency ￰9￱ Ethereum floating around an all-time high, matching its 2021 peak level (preceding a fall back toward $1K), I think it's an excellent time to cover ETHA and provide an outlook for ￰10￱ my opinion, there are two key questions we must answer.

First, how might immediate changes in retail sentiment and technical trends influence its price over the coming months? Second, what utility value (wealth storage, transactions, privacy, etc.) does Ethereum provide that secures its long-term value over other cryptocurrencies? Retail Exuberance Is Fading As Liquidity Slows The launch of Bitcoin and Ethereum ETFs may have been a major catalyst behind this year's bull market, allowing a large increase in retail investor flows, particularly from older/retired individual investors looking to diversify into alternative assets (without opening a separate crypto brokerage account). Still, given that both ETH and BTC have slowed down, with fund flows into ETHA slipping, it may be a good time to be cautious.

Historically, my view on Bitcoin is that it's a neat trading asset, benefiting from lower cross-market correlations, but its long-term utility is weak given the immense energy costs and time required to perform transactions on its ￰11￱ may still have a first-mover advantage, but I think it's technologically archaic compared to Ethereum and ￰12￱ Bitcoin's many "currency pitfalls," it is more often seen as "digital gold." However, I've also pointed out its low correlation to real interest rates/inflation expectations (which gold usually has), limiting its ability to store wealth ￰13￱ me, it is essentially a store of excess market liquidity, which has been high since the money-printing binge of ￰14￱ US Monetary Base , the total amount of currency and Fed reserve balances (money made through quantitative easing), was $3.2T in 2019, rising to just over $6.4T by the peak of QE in ￰15￱ figure has plateaued around $5.6T, meaning no new net currency is flowing into the US financial system.

Still, that cash is still working its way through the system, first going primarily into banks and then into individual investors' cash ￰16￱ can measure bank excess liquidity through Fed reverse repurchase liabilities (excess commercial bank cash lent back to the Fed). That metric skyrocketed toward the end of QE by 2021 as banks still saw cash rise due to QE, but that new money was not demanded by borrowers who were then coming out of COVID-related economic strains (this was a major inflationary trigger). Individual investor cash allocations can be tracked through AAII ￰17￱ members are representative of the ~60+ $1M+ net worth cohort, so not necessarily the younger "early" crypto investors, but what I think is the growing crypto investing class (those buying ETFs like ETHA).

When we're thinking about Ethereum or Bitcoin on a short-term (3-6 month) basis, I think our best data is changes in market ￰18￱ has cash, and where are they putting it? With inflation a potential recurrent issue (limiting bonds), stock valuations very high, and the economy somewhat stagnant, it makes sense that cryptocurrencies are a go-to place for extra ￰19￱ inverse correlation between Ethereum (and Bitcoin) and AAII cash allocations is particularly strong: Data by YCharts The crashing (deflationary) COVID economy was offset by tremendous monetary base expansion in 2020, resulting in inflationary excess bank liquidity by 2021 into 2022 (reverse repo liabilities).

AAII cash allocations rose initially in 2020 as investors rebalanced during the "lockdown crash." As that cash went back into financial assets, Ethereum's value skyrocketed, peaking around November 2021, just as cash allocations hit an extreme ￰20￱ subsequent end to QE and sharp rate hikes led to a broad market sell-off in risk assets, including stocks, long-term bonds, and cryptos, throughout ￰21￱ allocations rose back to historical highs (~25%). Ethereum ￰22￱ transition to quantitative tightening took some money out of the financial system, resulting in the plateau and 2023 decline in reverse ￰23￱ then flowed back into financial assets, pushing ETH and Bitcoin back up in late 2023 to early last ￰24￱ saw this cycle repeat early this year during the spring ￰25￱ began with low cash allocations around 14-15%, resulting in a sharp ETH sell-off that ended around April, aligning with the peak in cash ￰26￱ saw the steep rise in basically everything, particularly Ethereum, potentially benefiting from added demand via ￰27￱ allocations are relatively low again.

They're not at the To me, the "liquidity data" I track paints a bearish picture for ￰28￱ and Bitcoin's short-term movements are driven by changes in excess liquidity, which has been drying up over recent ￰29￱ the same time, shares outstanding of ETHA have shifted from sharply rising to a recent small decline, indicating investor demand may be shifting back toward defense. Further, the longer-term ETH-BTC trend, which bounced over the summer, is potentially reversing and may be back in line with a long-term negative trend: Data by YCharts Ethereum outperformed Bitcoin during the 2020-2022 period, but has reversed all relative gains since ￰30￱ the above chart is not conclusive, I find it notable that ETH-BTC peaked around that linear negative trend from late 2022 to the start of 2025.

I see this as ETH being oversold to BTC by late spring, now possibly being overbought (relative to BTC). This adds to my bearish short-term bias on ￰31￱ Has More Utility Than Bitcoin Ethereum builds upon Bitcoin, and to me, it is clearly superior in terms of ￰32￱ said, it is not necessarily "functional," just more so than ￰33￱ is based on "smart contracts," written in the programming language "Solidity." These coded contracts create a non-changeable contract that companies or people can use to make financial deals outside of centralized ￰34￱ this improves Bitcoin, and it beats it on many other fronts , Ethereum still suffers from slow transaction times (compared to Visa, etc.) and high ￰35￱ benefits from the usage of "smart contracts" through a "computational fee" called "gas." From Investopedia , "Gas fees compensate validators, who maintain and secure the blockchain, especially under the proof-of-stake model, which begvan in September 2022." This fee is then "burned," removing ETH from the market, creating theoretical deflationary benefits to its ￰36￱ that change was made, the supply of Ethereum slowed to a halt.

However, the gas price is now extremely low due to growing adoption of the "layer 2" network (also seen in BTC). See below: Data by YCharts From what I understand, the decline in gas fees from layer 2 utilization is not bearish because this results in more large transactions that use more "gas." To that end, Ethereum is seen as the "plumbing of crypto," particularly as crypto becomes a Wall Street asset with more regulatory support. Trump's policy changes have led to the rise of stablecoins this year, most of which are backed by Ethereum's contract ￰37￱ Bottom Line The fact is that there is so much hype and jargon around ￰38￱ use-case argument for Ethereum is compelling, particularly as we see PayPal, JPMorgan ( JPM ), and others start to create an institutional financial network that is tied to Ethereum.

Still, are institutional financial firms adopting ETH-based crypto products in order to gain exposure to the significant market liquidity wrapped up in the cryptocurrency market? Years ago, we saw a popular "use case" from non-fungible tokens, but that unsurprisingly ended in a huge ￰39￱ is a thought that "smart contracts" can be used for legal contracts, such as property titles, energy credits ( carbon credits ), and intellectual property ownership, etc. Yet, that remains mostly theoretically, and the vast majority of Ethereum network usage is for crypto ￰40￱ my opinion, Ethereum is mostly a partial solution to a partial ￰41￱ a degree, I think Ethereum and Bitcoin exist for their own sakes, lacking clear functionality beyond the crypto finance industry.

I may be wrong, and many would disagree with me, but I don't expect to change my view until there are true, real-world (not finance/crypto) uses for the Ethereum ￰42￱ were supposed to be that, but they proved to be mostly speculative ￰43￱ Ethereum technology is interesting, but its primary "use case" (as in, why most people buy it) is seemingly to speculate on its ￰44￱ may have functionality in multiple domains, but the main domain seems to be gambling on its price. Thus, its primary driver is not ETH-based economic activity, but changes in excess cash in the financial system, particularly among individual ￰45￱ a long-term standpoint, I think it's worth watching Ethereum.

I know it's premature for me to state that it lacks non-speculation/crypto ￰46￱ a short-term basis, I expect ETHA will decline over the coming months or weeks as the liquidity-driven speculative momentum behind it slows or reverses. I am bearish on ETHA, expecting it to decline through year-end. However, while I see limited real-world economic value in Ethereum, I recognize the trend we've seen this year (in ETH-based stablecoins) may prove me wrong, so my long-term outlook is relatively neutral.