Welcome to our Institutional Top of Mind with 10x Research, with our Macro Shifts series examining the forces reshaping the crypto landscape in 2025. Each analysis offers institutional investors a data-driven perspective on the regulatory environment, political influences, market infrastructure development, and macroeconomic drivers that matter most. Join us as we analyze these macro shifts through an institutional lens, providing deeper insights for sophisticated market participants navigating this rapidly evolving space.
In our seventh installment, 10x Research reassesses Ethereum one year after a contrarian stance amid ETF approval enthusiasm. Despite ETH's recent resilience, analysis seems to suggests caution—with high funding rates coinciding with ETF inflows pointing to arbitrage rather than conviction, while network activity remains subdued. As ETH approaches a technical decision point, analysis encourages another look, viewing recent developments as arbitrage-driven rather than fundamentally supportive.
A year ago, as enthusiasm for Ethereum ETF approval surged, we took a contrarian bearish stance. Wall Street lacked a compelling narrative to market these products to institutional investors, and on-chain activity on the Ethereum network had all but stalled. Unsurprisingly, ETH fell from $4,000 to $1,500.
Today, Ethereum has rebounded alongside broader markets as concerns about Trump's tariffs fade. While we anticipated a short-term pullback, ETH price action has been more resilient than expected. The key questions now are: Has Wall Street finally begun effectively distributing Ethereum ETFs to long-only investors? Has on-chain activity improved following the Petra upgrade, as Ethereum attempts to recapture value lost to Layer 2s? Is Sharplink Gaming’s $425 million ETH treasury allocation the start of institutional adoption? Or is the real driver behind ETH’s stability the advancing GENIUS Act—U.S. legislation to regulate stablecoins, a sector in which Ethereum holds a 51% market share?
Technically, Ethereum is nearing the apex of a broader triangle formation, with an eventual breakout likely to push prices toward either $2,000 or $3,000. A close below $2,500 would confirm the bearish setup, while a close above $2,700 would indicate bullish momentum. But price alone doesn't tell the whole story—fundamentals still matter.
On May 20, the GENIUS Act moved closer to a Senate vote, potentially laying a regulatory foundation for stablecoins, seen by some as a tailwind for Ethereum. Still, ETH has continued trading sideways, reflecting a lack of directional conviction. ETF inflows only turned net positive for the year two weeks ago, yet have added $740 million since May 16. While some speculate that a large institutional buyer has entered, the timing coincides with the altcoin rally linked to the May 12 token unlocks. Meanwhile, ETH funding rates spiked above 10% on several days, likely offering the yield hedge fund arbitrageurs were waiting for.
Our models estimate that Bitcoin funding arbitrage positions remain modest, under $1 billion; yet, the dynamics in ETH are now driving bullish narratives that overlook large short futures positioning. Since May 13, ETH prices have remained flat, while ETF inflows have reached $780 million. The average funding rate has more than doubled—from 3.9% in Feb–Mar to 8.8% since May 13, strongly implying that recent ETF inflows are arbitrage-driven, not indicative of long-term bullish conviction.
Exhibit 1: Ethereum Funding Rate (LHS, %, 5-day average) vs. ETH ETF Flows (RHS, $ million)
CME Ether futures open interest rose by $572 million, and crypto exchange open interest jumped by $2.6 billion—again, with no significant price movement. This reinforces our view that the recent inflows are driven by arbitrage, rather than being structural.
Looking ahead, with crypto markets heading into a likely slow summer and funding rates expected to decline, ETF inflows may soon lose momentum. Some traders misread ENA-USDT’s recent rally as ETH-related, though it appears more tied to its Coinbase listing than Ethereum funding dynamics.
On May 29, the SEC clarified that staking activities do not require registration—a regulatory win for Ethereum ETFs. Still, fundamentals remain weak. Validator growth peaked in November 2024, and ETH staking yields remain well below the 10-year Treasury rate. Without scarcity, and with subdued DeFi activity, Ethereum's inflation rate has turned positive, undermining long-standing narratives about it “flipping” Bitcoin. ETH is still down 47% from its all-time high in 2021.
Exhibit 2: Ethereum Validators (LHS) vs. 30-day change in validators (RHS)
The argument that staking reduces sell pressure is weakening. With 28% of ETH already staked, further growth is limited. The idea of Ethereum as the “oil” of crypto looks increasingly stale. Validator queues may ap
pear bullish, but similar spikes in 2024 failed to stop ETH’s decline. We continue to believe that when investors choose to stake ETH, it often reflects a lack of better use—not a sign of strength.
Weekly ETH network revenue has dropped to just $5 million, far below the $30–50 million range seen between November and January. This confirms usage remains negligible, and current prices are being supported more by inflows than fundamentals. The one constructive datapoint: ETH held on exchanges has declined by $2 billion over the past month, with the share dropping from 14.9% in April to 13.4%—mirroring accumulation trends seen in Bitcoin.
SharpLink may have removed $425 million in ETH from exchanges and signaled plans to raise up to $1 billion in equity to buy more. Still, yields remain uncompetitive, and institutional appetite for Ethereum remains tepid. Without strong fundamentals, any rally remains vulnerable, especially as arbitrage trades lose steam.
Conclusion: Ethereum remains technically vulnerable and fundamentally weak despite headline ETF inflows. With rising funding rates and flat price action, the rally shows signs of fragility. Real usage remains low, yields are uncompetitive, and Wall Street enthusiasm appears premature. A decisive break below $2,500 would validate the bearish case and likely trigger a move toward $2,000. We remain cautiously bearish—and ready to act on confirmation.
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