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The Rise and Fall of Ethereum and Bitcoin, Respectively
The biggest winners of last week were Ethereum (+7.88%), Arbitrum (+15.93%), and Uniswap (+7.38%). What happened in crypto this week? Sticky inflation is back in the U.S. and the Eurozone; annual inflation in both economies increased by 3.4% in December. However, the factors differ. Eleven spot Bitcoin exchange-traded funds (ETFs) have been approved in the U.S. However, the asset in question fell by 9.27% over the past week, while its rival, Ethereum, has enjoyed some spotlight with a weekly increase of 7.88%. How did that happen? Let’s make it make sense.
Inflation is Back
On January 10, the vice president of the European Central Bank (ECB), Luis de Guindos, gave a speech about the economic outlook and monetary policy in the euro area, whose annual inflation increased by 3.4% in December, and how the economy’s downturn is expected to continue in 2024. The ECB decided to keep the three key interest rates unchanged. Although it has declined significantly from its peak in March, food inflation remained high at just above 6% in December. As shown in Figure 1, energy inflation remained negative in December, recording the eighth consecutive decline since May 2023.
Figure 1: Euro-Area Inflation by Category
Source: Eurostat, Bloomberg
In the U.S., the annual inflation rate also increased by 3.4% in December, the most in three months. The cost of housing, clothes, and cars are some of the primary contributors to the sticky inflation that has dimmed rate-cut expectations. With three rate cuts anticipated for 2024, investors expected the first rate cut to be as early as March. Despite the consumer price index print, some are even expecting a rate cut for each of the seven Fed meetings. Speculation aside, the Fed’s Fund Rates Statement is scheduled for the end of this month.
Finally, a sticky inflation is inherently good news for crypto, namely Bitcoin, as its emerging narrative has been shining brighter as a hedge against currency debasement.
Figure 2: U.S. Inflation by Major Categories
Source: U.S. Bureau of Labor Statistics
A Landmark Moment for Bitcoin
After months of delays, the applications for spot Bitcoin ETF were finally approved, with 11 asset managers getting the regulatory green light to launch their fund products. While spot ETF products have been present in Europe for the past five years, their introduction in the US marks a significant milestone. American markets, valued at $45 trillion in market capitalization, are nearly three times larger than their European counterparts at $13 trillion. This opens the door for much broader participation, solidifying crypto as a credible asset class and propelling it further into the mainstream, where it can seamlessly integrate into the traditional portfolios of the largest asset managers in the world.
Approximately $17.5B has been traded on the products since launch, with total inflows reaching close to $1.2B. That said, Bitcoin moderately declined by ~9% since the ETF launch, which was first triggered by December’s CPI data, showing that inflation was on the rise again and prompting a temporary risk-off response. In addition, as shown in Figure 3, short-term investors seized on the opportunity presented by the hallmark event as they transferred a record amount of BTC (48K) to exchanges – levels last seen almost three years ago. Given that Bitcoin grew by nearly 90% since the initiation of the ETF speculation rally in June 2023, marked by BlackRock’s initial application filing, it is logical to see this level of profit-taking.
Figure 3: Bitcoin Short-Term Holders Transfer to Exchanges Activity
Source: Glassnode
Ethereum Regaining Spotlight
As markets are forward-looking, Ethereum surged by close to 8% week-over-week following the approval of the spot Bitcoin ETFs. Although it’s still quite unclear if Ethereum would receive the same regulatory treatment as Bitcoin, investors may have speculated that Ethereum could be in a favorable position due to the existence of an ETH futures ETF in the U.S. – a reminiscent feature of Bitcoin’s position ahead of the approvals. Beyond the speculation, Ethereum is inching closer toward its network upgrade called the DenCun, which is expected in February. The upgrade should reduce the transaction fees for all scaling solutions built on top of the network, like Optimism and Arbitrum, by about 90%.
Further, the co-founder of Ethereum, Vitalik Buterin, proposed to increase the block gas limit by 33%, from 30M to 40M units, which would improve the network’s throughput. Although it is too early to tell if the proposed improvement will see the light, leading on-chain metrics such as Network-to-Value (NVT) can give a better picture of the network’s valuation. In the figure below, we can see that Ethereum’s NVT ratio is in a downtrend, often an indicator of bullish sentiment and improving fundamentals if the price continues to appreciate in tandem. That implies a higher adoption rate for the network, which can be observed in the increasing daily transactions as they grew from 1.25M to 1.96M over the past week, showing Ethereum’s on-chain ecosystem is experiencing an uptick in usage.
Figure 4: Ethereum’s 30-Day Moving Average Network-to-Value Ratio
Source: 21co on Dune Analytics
This Week’s Calendar
Source: Forex Factory, CoinMarketCal
Research Newsletter
Each week the 21Shares Research team will publish our data-driven insights into the crypto asset world through this newsletter. Please direct any comments, questions, and words of feedback to research@21shares.com
Disclaimer
The information provided does not constitute a prospectus or other offering material and does not contain or constitute an offer to sell or a solicitation of any offer to buy securities in any jurisdiction. Some of the information published herein may contain forward-looking statements. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those in the forward-looking statements as a result of various factors. The information contained herein may not be considered as economic, legal, tax or other advice and users are cautioned to base investment decisions or other decisions solely on the content hereof.
- Michael Saylor’s bold Bitcoin bet and Strategy’s risk analysis
- Bitcoin price technical analysis: Where are the liquidation levels?
- What are real-world assets and why do we need tokenization?
Michael Saylor’s bold Bitcoin bet and Strategy’s risk analysis
Strategy (formerly MicroStrategy) has amassed a staggering $43 billion in Bitcoin, positioning itself at the forefront of the corporate “reserve race.” Under the leadership of Bitcoin maximalist Michael Saylor, the company now boasts an $84 billion market cap. But with such an aggressive strategy, how sustainable is its approach—and what risks lie ahead? We break it down in today’s analysis.
Bitcoin price technical analysis: Where are the liquidation levels?
A drop below $72,000 could flush longs, while a breakout above $90,000 may squeeze shorts. One key positive indicator is that Bitcoin continues to print higher lows since March 10, which preserves a bullish market structure in our view. Dive into our technical analysis.
What are real-world assets and why do we need tokenization?
Imagine owning a slice of a skyscraper or a piece of fine art with just a few clicks. Tokenization, the act of converting ownership rights to real-world assets (RWAs) into tradable tokens, has surpassed $10 billion in on-chain value, unlocking global 24/7 access to once-exclusive markets with liquidity, efficiency, and yield. Find out how it works.
Research Newsletter
Each week the 21Shares Research team will publish our data-driven insights into the crypto asset world through this newsletter. Please direct any comments, questions, and words of feedback to research@21shares.com
Disclaimer
The information provided does not constitute a prospectus or other offering material and does not contain or constitute an offer to sell or a solicitation of any offer to buy securities in any jurisdiction. Some of the information published herein may contain forward-looking statements. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties and that actual results may differ materially from those in the forward-looking statements as a result of various factors. The information contained herein may not be considered as economic, legal, tax or other advice and users are cautioned to base investment decisions or other decisions solely on the content hereof.
Since President Trump appointed Mark Uyeda as acting SEC chair two months ago, many investigations into crypto businesses have been dropped, as the SEC moves away from regulation by enforcement and works to create a framework for digital assets. As regulations become clearer and news flow turns more positive, crypto prices—which dropped sharply this week—should begin to better reflect the new regulatory landscape in the US.
We believe this regulatory shift could ultimately help trigger the next leg of the current bull run, as investors better understand the significance of regulatory clarity and seek to acquire bitcoin and altcoins at what we believe are currently very favorable levels.
Market Highlights
SEC Dismisses Crypto Enforcement Actions
The SEC dropped its enforcement actions against crypto-related companies Kraken, Consensys, and Cumberland DRW.
This indicates a shift in SEC’s regulatory approach, favoring clearer guidelines over enforcement actions. Such a pivot could foster a more predictable environment, encouraging innovation within the sector.
Banks to Engage in Crypto Activities
The FDIC has rescinded previous guidelines which prevented financial institutions from engaging with crypto activities without prior sign-off.
By removing bureaucratic hurdles, banks may more readily offer crypto-related services, potentially leading to broader adoption and integration of digital assets.
Bitcoin ETFs Inflow Streak Surpassed $1 Billion
US spot Bitcoin ETFs have recorded a 10-day inflow streak exceeding $1 billion marking the longest such streak in 2025.
This underscores growing institutional and retail investor confidence in Bitcoin as an asset class that helps increase market stability and possibly paving the way for the approval of other crypto-based financial products.
Market Metrics
All NCITM constituents had negative performance last week, with XRP (-10.8%) and UNI (-10.7%) seeing the steepest declines. ETH also experienced a sharp drop (-9.1%), contributing to NCITM’s underperformance relative to BTC (-2.9%). The NCITM -4.2% decline reflects a broader risk-off sentiment in the crypto market, as investors reassess their positions amid ongoing macroeconomic uncertainties.
NCITM (-4.2%) extended its underperformance last week, deepening year-to-date losses. Traditional indices like the S&P 500 (-1.5%) and Nasdaq 100 (-2.4%) saw smaller declines. The gap between crypto and other risk assets continues to widen, while gold has emerged as the top performer in 2025, gaining nearly 20% amid ongoing macroeconomic uncertainties. This trend highlights a growing risk-off sentiment, with investors shifting toward defensive assets and away from high-volatility investments.
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