Ethereum’s Ballmer Moment: When Everyone Is Bearish, the Circulating Supply Is Disappearing

Original Author: Ben Lakoff

Original Translation & Compilation: TechFlow

Introduction: When the founder of Bankless liquidated all his ETH and 19-year-old developers flocked to Solana, the bearish narrative for Ethereum has become consensus. However, Ben Lakoff, a partner at BanklessVC, believes this is precisely a replay of Microsoft's "Ballmer era" — a superficially bearish narrative masking steady fundamental growth underneath. A 30% staking rate, ETF accumulation, and regulatory clarity are compressing the circulating supply, and as crypto regulation shifts from an existential threat to a legal framework, this is actually the best time to get in.

Welcome to the May Deal Flow Summary.

The thesis section this month is a bit longer, so I've placed it upfront, with all the funding rounds, fund raises, and hackathon results following afterwards.

Ethereum's Ballmer Era

Last month, David Hoffman sold all his ETH at $2,070 and wrote a thoughtful article explaining why. It spread like wildfire on X (Twitter).

David then appeared on the Chopping Block podcast, a conversation I really enjoyed. Tarun said Ethereum is "ossifying" because no 19-year-olds want to build on it. Max Resnick called the Ethereum Foundation "risk-averse." Bullish Haseeb gave the entire bearish narrative a name: It's Ethereum's Ballmer Era. That framing resonated with me.

The framework is too good to just let pass by.

Yes, I am bullish on "crypto," bullish on BTC, bullish on ETH… bullish on the trend. But pretending the bear narrative is weak is just self-deception, so I want to elaborate on my stance. These are my views, not necessarily the views of BanklessVC, and certainly not investment advice.

The Bear Narrative Has a Name, And It's Not Wrong

The substance is real. In fact, we've dropped another 10% since that article was published.

David's thesis: ETH as money was always a long-term bet, and the rollup-centric roadmap makes it even longer. Ethereum is a "giver, not a taker"... It's designed to distribute blockspace at cost. L2 profit margins reach 98% of blob revenue. The gas limit is gradually being raised to 100 million+. The BPO fork aggressively expands blob supply. The surge from $3 billion to $163 billion in stablecoins created value for Circle and Tether, not ETH. Meanwhile, SOL, NEAR, BNB, and TRX have reset their valuations to fee-driven benchmarks. He's right mechanistically. The protocol is designed for blockspace abundance, which is the exact opposite of the fee-driven value capture you'd want.

Tarun's "ossification" view is the cultural version of the same thing. Talent follows founder energy, and right now that energy is in Solana, Monad, Hyperliquid, and whatever comes next (maybe not Ethereum, maybe not crypto). Resnick's "risk-averse EF" is the institutional version. The foundation is piously focused on protecting network integrity at a time when it needs to be competitive.

Haseeb is right. A "Ballmer Era." Slow product cadence. Botched transitions. Sharper competitors with killer instinct. Loud critics with correct views.

What the Ballmer-Era Microsoft Actually Paid Off

Ballmer ran Microsoft from 2000 to 2014. The joke is: wasted 14 years. Missed mobile, missed search, missed social, shipped Vista, threw a few chairs.

That's the joke I remember, but the joke misses something. Microsoft's stock was flat for over a decade, while the enterprise franchise quietly compounded underneath. Dividends did most of the heavy lifting. Office and Windows licensing were printing money throughout the entire "Microsoft is dead" narrative. Then Satya took over, and MSFT went up 10x.

The lesson (at least in Microsoft's case) is that deeply integrated, enterprise-adored, time-tested infrastructure often continues to compound through its own bear narrative. The bear narrative is usually right on the surface. Just not enough to short against.

Ethereum is still the largest credibly neutral public chain for tokenized assets. BUIDL launched there. Roughly 66% of USDC supply is there. The deepest DeFi liquidity is there.

But the lead is shrinking fast. BUIDL isn't only on Ethereum (40%), down from about 85% a year ago. USDC exists on 34 chains. Western Union chose Solana over Ethereum for USDPT. The institutional default choice is shifting from singular "Ethereum" to plural "public chains."

Still bullish for the incumbent. Just not a monopoly anymore. Whether 19-year-olds want to build there is a real long-term concern. But it's not a question that determines the next two years.

Beneath the Noise: The Circulating Supply Is Collapsing

This is the part most bear narratives miss.

About 30% of ETH is staked. Treasury companies hold another 6%+ and growing. BitMine alone holds 4.47% of the supply and is publicly targeting 5%. Spot ETFs continue to absorb more. The SEC/CFTC ruling on March 17 classified staking rewards as non-securities, which opened up the entire staking ETF pipeline. Five other issuers (Fidelity, Franklin, Invesco, 21Shares, VanEck) have staking amendments pending for a Q2 decision.

Every ETH staked via an ETF is ETH that cannot be sold during a price impulse. Net issuance is about 0.23% annualized. Circulating supply is shrinking faster than that, with these demand-side players bidding on most days. The math doesn't care if ETH is boring.

So David is right that ETH won't reprice based on fee burning. The roadmap chose abundance. But ETH can reprice based on circulating supply compression, staking yield demand, and the institutional Schelling point premium without winning the fee war. At least in the short term.

Crypto's TAM Keeps Rising

Zoom out from ETH for a moment. The real story of the past 12 months is that crypto regulation has gone from an existential threat to a legal framework.

The GENIUS Act has become law. Payment stablecoins now have a federal framework. The CLARITY Act passed the House last July, passed the Senate Banking Committee on May 14, and structurally looks very likely to pass before the midterm elections. Stablecoin circulation exceeds $280 billion and is compounding. Tokenized Treasuries are scaling. Spot ETFs exist for a growing number of assets.

This is not the phase of crypto's demise. This is the phase where crypto becomes a regulated, trillion-dollar slice of the financial system, and boring institutions are mandated to plug in.

In previous bear markets, we genuinely worried whether this ecosystem would still exist in the future. But there are caveats, and they matter.

First: Crypto winning is not the same as decentralized crypto winning. The truly scary bear case isn't David's fee math. It's that "blockchain wins" ultimately looks like Canton, JPM Onyx, DTCC's permissioned ledger, and a few Avalanche subnets, with the public crypto asset complex essentially capturing no real value.

That world exists (and is concerning), but I'd bet on the public chain side for several reasons. Pure permissioned chains, sold as the institutional answer for a decade, have consistently failed to gain adoption (maybe this time is different?). The architecture that's actually winning is permissioned assets on public chain rails: BUIDL, BENJI, Ondo's USDY. Tokens enforce KYC and transfer restrictions; settlement runs on Ethereum, Solana, and other public infrastructure. The track record of KYC pools coexisting with open public pools (Aave Arc, Compound Treasury) is that they failed.

This is still bullish for public chains as settlement layers, including ETH. But it's weaker than full DeFi composability. Permissioned assets cannot freely compose with open pools, but the gated-access version is the model that's winning.

Second: The question is no longer whether crypto adoption will happen. It's which crypto will capture it. The honest answer is that not all of it will flow to ETH, but the huge institutional, regulated, "need-credible-neutrality" portion almost certainly will. Because the alternative is asking Tier 1 banks to settle tokenized assets on a chain run like a startup… unlikely.

This is where the Ballmer framework underestimates the bull case. It only works if the underlying market keeps growing. Crypto's underlying market is growing rapidly, in the most regulator-blessed, institutional way.

The Barbell Strategy: Bullish on Trend, Not Maximalism

The bear narrative I take seriously isn't the fee analysis. It's leadership and competition. The EF might indeed need its Satya moment. The killer instinct vacuum is real. Solana, Monad, and Hyperliquid aren't slowing down. ETH/BTC and ETH/SOL might chop or go lower for a while before turning.

The way to position around this is simple: Stop being a maximalist.

Hold ETH for the time-tested/institutional/circulating supply compression trade. Hold SOL for the consumer/throughput/distribution trade. Hold BTC for the macro hedge. Hold a small basket of next-gen L1s and application layer winners, where the cultural energy is actually flowing.

I know. ETH is a $250 billion asset, subject to macro trends, and capital allocation always involves trade-offs. I'm not a maximalist, but I am still bullish on ETH. Here's why:

Circulating supply is shrinking faster than issuance.

The Q2 staking ETF approval is a live, dated catalyst.

The CLARITY Act broadly unlocks institutional crypto. Clearer rules unleash regulated capital deployment into the entire asset class. ETH's moat is incumbent network effects plus credible neutrality, making it the default public chain settlement layer for tokenized assets, even if the lead is shrinking.

The bear narrative is so loud it's now consensus. Consensus bearishness after a 60% drawdown from $2,000 has a historically low hit rate.

The option value of a "Satya moment" is not priced in. If the EF gets restructured, or a more aggressive entity emerges to lead protocol development, that's pure upside no bear model includes.

I see this trade as "David is partially right AND ETH still works." Microsoft worked under Ballmer. Crypto adoption is winning. The asset you most want to own is the one most deeply embedded in the part of crypto for which the U.S. government just spent two years writing rules.

Step back and look at what regulators are actually saying. The SEC and CFTC are telling you they want to rebuild finance on-chain. Move dollars on-chain. In that world, how could this be anything but wildly bullish? Maybe if you're a cypherpunk, this isn't the world you envisioned... gated assets, KYC rails, everything permissioned. But for public chains as settlement infrastructure? Unambiguously bullish.

This is the key to where we are in the cycle. AI is the center of attention, period. It's hot, parabolic, and as an early-stage investor, that's precisely the problem. You want to deploy capital where it's not hot. When a sector is this overheated, it's hard to put capital to work without paying a premium, except at the earliest pre-seed stage.

Crypto, right now, is not hot. The bear narrative is consensus. The energy is elsewhere. This is the setup you want, not the one you run from.

On a long enough timeline, everything becomes AI, everything becomes blockchain. One of these two is priced as if it already has. The other just got a two-year head start written into law, while everyone was looking the other way.

Buckle up. Now, on to the rest of the crypto/web3 funding :)

Top 10 Crypto Funding Rounds

Kalshi | Series F | Prediction Market | $1 Billion | 2026-05-07

Led by Coatue, with participation from Sequoia, a16z, IVP, Paradigm, Morgan Stanley, and ARK Invest. This $1 billion round values Kalshi at $22 billion, double its $11 billion valuation just five months prior. Annualized trading volume tripled in six months to $178 billion, with institutional volume up 800%. Kalshi is CFTC-regulated and not crypto-native, so consider it an asterisk on this list, but it now commands over 90% of U.S. prediction market activity, and prediction markets are one of the cleanest on-ramp stories crypto currently has.

Dunamu (Upbit) | Strategic Investment | Centralized Exchange | $408 Million | 2026-05-28

Three Samsung affiliates (Samsung Securities, Samsung SDS, Samsung Card) agreed to buy a 4% stake in Dunamu, the operator of Korea's largest crypto exchange Upbit, from Kakao for approximately $408 million (612.8 billion KRW). Each buyer cited positioning for KRW-pegged stablecoins, tokenized securities, and on-chain settlements ahead of Korea's Digital Asset Basic Act. This is part of a May sprint that transferred about 14% of Dunamu shares to Korean giants like Hana and Hanwha. Closing on June 19.

Circle (Arc) | Token Presale | Infrastructure/Stablecoins | $222 Million | 2026-05-11

Circle raised $222 million (at a $3 billion FDV) for Arc, its institutional L1 for stablecoin settlement and tokenized assets. a16z crypto committed $75 million, joined by BlackRock, Apollo, ICE, Standard Chartered Ventures, SBI, Janus Henderson, General Catalyst, Marshall Wace, ARK, Haun, and Bullish. This is the clearest "TradFi is choosing its rails" signal of 2026. A regulated stablecoin issuer is building its own chain, with the largest asset managers on its cap table.

Ripple (Ripple Prime) | Debt Financing | Infrastructure/Prime Brokerage | $200 Million | 2026-05-11

Ripple secured a $200 million debt facility from funds managed by Neuberger Specialty Finance to expand the lending capacity of its multi-asset prime broker, Ripple Prime. Existing institutional loans serve as collateral. Ripple Prime's revenue has tripled year-over-year since Ripple acquired the platform in 2025. TradFi credit backing a crypto prime broker's lending book.

Elliptic | Series D | Compliance/AI x Crypto | $120 Million | 2026-05-12

One Peak led this $120 million round (valuation $670 million), with participation from Nasdaq Ventures, Deutsche Bank, and the British Business Bank. This is the largest pure equity venture round of the month. Elliptic is building agentic AML/compliance tools. Read from a post-April perspective: This is the operational and compliance layer DeFi keeps being reminded it needs, now backed by TradFi capital.

Fun | Series A | Payments/Consumer | $72 Million | 2026-05-01

Co-led by Multicoin Capital and SignalFire, with participation from Infinity Ventures, Pharsalus Capital, and Justin Mateen. Fun provides crypto/fiat on/off ramps powering financial platforms like Polymarket. The largest consumer/payments VC round this month, a clean bet on the prediction market and consumer crypto momentum track.

Fasset | Series B | Stablecoins/Payments | $51 Million | May 14, 2026

SBI Group led this $51 million round, joined by Investcorp and Arz Portföy. Fasset is a stablecoin-driven neobank targeting emerging markets, with an annualized transaction volume of approximately $32 billion. This is real proof of the