Surprise? Reversal?

Last week, Trump increased tariffs, causing both the stock market and cryptocurrency to fall sharply. However, it seems that the enthusiasm for crypto hasn’t been dampened. The net inflow into crypto ETPs reached $1.3 billion, indicating that investors still hold an optimistic view of cryptocurrencies.

ETP, or Exchange Traded Product, is a type of financial product that can be traded on public markets, similar to stocks, but it tracks specific assets such as stocks, gold, or in this case, cryptocurrencies.

A crypto ETP is an investment product specifically focused on digital assets like Bitcoin and Ethereum. Investors can purchase these through traditional securities exchanges without the need to directly hold cryptocurrencies.

Bitcoin ETFs and Ethereum ETFs are representative crypto ETP products. They offer a compliant, transparent, and convenient way for investors to gain exposure to cryptocurrencies in traditional markets without having to manage wallets or private keys.

Notably, crypto ETP inflows have been sustained for five weeks, suggesting that despite potential short-term market disruptions from economic policies, long-term confidence in the crypto market remains intact. Therefore, I still believe we are in a “bear trap” phase (see: Bitcoin Falls Below $92,000: Is This the End of the Bull Market or a Bear Trap?).

The “surprise” and “reversal” mentioned in the title of this article refer to a detail in last week’s fund inflows that could spark some thoughts. That detail is — of the $1.3 billion inflow, $793 million flowed into Ethereum ETPs, surpassing Bitcoin ETPs by 95%.

According to CoinShares’ analysis, this surge was due to ETH’s price briefly falling below $2,700, offering investors an opportunity to buy at a lower price. However, it seems that more investors bought on the left side, as ETH dropping below $2,700 has been common in recent days, and it even dipped below $2,600 at one point. If you’re new to the terms “left side” and “right side,” check out the article from the day before: Has Bitcoin Hit the Bottom?

Personally, I believe that more funds flowing into Ethereum instead of Bitcoin is still more of an anomaly, similar to what happened at the end of last year. Moreover, the buyers of ETPs are likely traditional financial users, so this does not necessarily represent the trend across the entire market, including centralized exchanges (CEX) and decentralized exchanges (DEX).

It’s true that Ethereum is now quite low, but whether it has reached the bottom is still hard to say. However, there is a reference indicator worth noting — the current ETH/BTC price ratio has fallen below 0.03 and is now near 0.027.

Looking at history, ETH/BTC below 0.03 is rare. A similar situation occurred at the end of 2019 and during the market panic following the FTX collapse in 2022.

We’ve just experienced a panic period. On February 3rd, Bitcoin briefly fell below $92,000. If ETH/BTC stabilizes around 0.027, we could see a short-term rebound, especially if ETH finds support around $2,500.

However, if ETH/BTC continues to fall and even breaks below 0.025, the market might enter a deeper Bitcoin-dominated phase, and Ethereum could face a longer period of adjustment. Additionally, there’s no shortage of voices in the market that are pessimistic about Ethereum.

Since ETH/BTC fell below 0.03, many Bitcoin maximalists have jumped in to claim that Ethereum is on an “irreversible downward slope,” and that Bitcoin will continue to lead the market’s growth. They even argue that Ethereum’s current relatively high price is entirely supported by institutional funds, and once liquidity issues arise in the market, Ethereum will face a real “liquidation moment.”

Even more frightening is that Ethereum is facing strong shorting pressure from Wall Street hedge funds.

Analysts point out that hedge funds have dramatically increased their short positions on Ethereum in the past few months. According to data from Kobeissi Letter, Ethereum short positions increased by 40% in the past week and surged by 500% since November 2024. To use a metaphor, Ethereum now resembles a bridge carrying too much weight, with hedge funds continually adding pressure, waiting for it to collapse under the strain.

Why are Wall Street institutions so determined to short Ethereum? Some possible reasons you might think of:

• The Rise of Competing Blockchains: Chains like Solana and Base offer lower transaction costs, attracting a lot of DeFi and memecoin trading, while Ethereum’s high gas fees are causing retail users to slowly migrate away.
• Increasing Discontent with the Ethereum Foundation: The Ethereum Foundation is seen as “well-funded but slow-moving,” and the market is starting to question whether it can innovate quickly enough to compete with emerging blockchains.

In fact, the primary cause of the market’s pessimism is an imbalance between supply and demand:

• Early Profit-Taking and Massive Selling Pressure: Unlike Bitcoin, Ethereum still has many early holders who have not yet sold their positions. These holders include:
• ICO investors (2015–2016): Many acquired ETH at extremely low prices and still hold a portion of it.
• Early miners (2015–2021): Ethereum accumulated during the PoW era is still substantial and could flood the market at any time.
• DeFi Summer winners (2020): A large number of early DeFi participants and project founders hoarded ETH, with purchase costs close to zero, so they might dump it at any time.
• Long-Term Inflation Concerns from Ethereum’s PoS Mechanism: Since the transition to PoS with Ethereum 2.0, while gas fees have been burned to reduce supply, the core issue with PoS is that holders are more likely to accumulate rather than sell immediately. This creates “lagging selling pressure,” where the market appears to have reduced supply in the short term, but large funds could unlock their positions or ETH could correct, leading to a chain reaction of selling.

Additionally, PoS holders face lower “exit costs” compared to PoW. If the market enters a panic state, many validators could quickly unstake their ETH, accelerating the price decline. Institutions are well aware of this, and they take advantage of market sentiment to short Ethereum, further driving down its price.

Another key issue is that traditional financial capital has not yet fully understood the value of Ethereum. This can be seen from the fund inflows into ETPs — Ethereum’s ETP has received significantly lower inflows compared to Bitcoin’s ETP, indicating that institutional investors remain cautious about ETH.

Despite last week’s large inflow into Ethereum ETPs, Bitcoin ETP still leads with a year-to-date inflow of nearly $6 billion, 505% higher than Ethereum’s year-to-date inflow.

For me, whether or not Ethereum can mount a successful “counterattack,” I remain bullish on Ethereum because its decentralization advantage is unparalleled. The trading volumes driven by meme coins don’t mean much. What is more convincing than trading volume is TVL (Total Value Locked).

As shown in the chart below, even without considering Ethereum’s L2 or Solana’s meme coins, the TVL on Ethereum’s main chain is still more than six times that of Solana. This indicates that Ethereum’s blockchain base has never been shaken. Of course, the challenges Ethereum faces are due to its own innovations, and it will have to continue solving these problems through further innovation (see: Is Ethereum Inflating Again? Don’t Worry, This Might Be an Opportunity!).

I believe Ethereum is seriously undervalued. When Ethereum plunged on February 3rd, I seized the opportunity to open a few leveraged ETH-USDC liquidity mining positions (see the chart below). Of course, I also left room for Ethereum to continue falling. Even if it drops below $2,000, my position remains safe. Additionally, I have enough USDC as backup to add collateral at any time.

Finally, returning to the title: Perhaps the larger inflows into Ethereum ETP last week were just an “accident,” but have you ever thought about it? Isn’t every “reversal” actually an “accident” waiting to happen?

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