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

Original Author: Ben Lakoff

Original Translation: TechFlow

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

Welcome to the May Deal Flow Summary.

The thesis section is a bit longer this month, so I'm putting it upfront, with all the funding rounds, fundraises, and hackathon results following after.

Ethereum's Ballmer Era

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

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

The framework is too good to just let it go.

Yes, I'm bullish on "crypto," I'm bullish on BTC, I'm bullish on ETH... I'm 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 those 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 post was published.

David's argument: 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 hit 98% of blob revenue. The gas limit is gradually rising to 100M+. 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 on the mechanics. The protocol is designed for blockspace abundance, which is the exact opposite of the fee-driven value capture you want.

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

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

What Ballmer-Era Microsoft Actually Paid Off

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

That's the meme I remember, but the meme misses something. Microsoft stock was flat for over a decade, while the enterprise franchise relentlessly compounded underneath. Dividends did most of the work. 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-beloved, time-tested infrastructure tends to keep compounding through its own bear narrative. The bear narrative is usually right on the surface. It's just not enough to be short.

Ethereum is still the largest credibly neutral public chain for tokenized assets. BUIDL launched there. About 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 ~85% a year ago. USDC exists on 34 chains. Western Union chose Solana over Ethereum for USDPT. The institutional default is shifting from singular "Ethereum" to plural "public chains."

Still bullish for the incumbent. Just no longer a monopoly. Whether 19-year-olds want to build there is a real long-term concern. But it's not the question that determines the next two years.

Beneath the Noise: The Circulating Supply is Collapsing

This is the part that most bear narratives miss.

About 30% of ETH is staked. Corporate treasuries 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 classifying staking rewards as non-securities opened up the entire staking ETF pipeline. Five more issuers (Fidelity, Franklin, Invesco, 21Shares, VanEck) have staking amendments pending for Q2.

Every ETH staked via an ETF is ETH that cannot be sold during a price impulse. Net issuance is ~0.23% annualized. The circulating supply is shrinking faster than that, and on most days, these receiving sides are bidding. The math doesn't care if ETH is boring.

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

Crypto's TAM Keeps Rising

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

The GENIUS Act became law. Payment stablecoins now have a federal regime. The CLARITY Act passed the House last July and the Senate Banking Committee on May 14, and structurally looks very likely to pass before the midterms. Stablecoin circulation is over $280 billion and compounding. Tokenized treasuries are scaling. Spot ETFs now exist for more 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 are important.

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 winning" ends up looking 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'll bet on the public chain side for several reasons. Pure permissioned chains have been pitched as the institutional answer for a decade and have consistently lost adoption (maybe this time is different?). The architecture that is 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 empirical track record of KYC pools sitting alongside 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 is weaker than full DeFi composability. Permissioned assets cannot freely compose with open pools, but the gated-access version is the winning model.

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, institutionalized, regulated, "needs-credible-neutrality" portion almost certainly will. Because the alternative is asking Tier 1 banks to settle tokenized assets on chains that operate like startups... 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 fast, in the most regulatorily blessed, institutional way possible.

The Barbell Strategy: Bullish on the Trend, Not Extremism

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 stay flat or go lower for a while before turning.

The positioning around this is simple: stop being an extremist.

Hold ETH for the time-tested/institutional/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 there are always trade-offs in where you allocate capital. I'm not an extremist, but I am still bullish on ETH. Here's why, in summary:

Circulating supply is shrinking faster than issuance.

The Q2 staking ETF approval is a real, date-bound catalyst.

The CLARITY Act broadly unlocks institutional crypto. Clearer rules allow regulated capital to deploy massively into the entire asset class. ETH's moat is its incumbent network effects plus credible neutrality, making it the default public chain settlement layer for tokenized assets, even as its lead narrows.

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

The option value of a "Satya moment" is unpriced. If the EF gets restructured, or a more aggressive entity emerges to lead protocol development, that is pure upside that no bear model includes.

I think the trade is "David is partially correct 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 that the US government just spent two years writing rules for.

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 the dollar on-chain. In that world, how can this not be insanely 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 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 a premium, except at the very earliest pre-seed stage.

Crypto, right now, is not hot. The bear narrative is consensus. Energy is elsewhere. This is the setup you want, not the one you flee.

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

Buckle up. Now, onto 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 raise values Kalshi at $22 billion, double its $11 billion valuation just five months ago. 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 US prediction market activity, and prediction markets are one of the cleanest onboarding 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, 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 settlement ahead of Korea's Digital Asset Basic Act. This was part of a May rush transferring ~14% of Dunamu's shares to Korean giants like Hana and Hanwha. Close date: June 19.

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

Circle raised $222 million ($3 billion FDV) for Arc, its institutional L1 for stablecoin settlement and tokenized assets. a16z crypto committed $75 million, with participation from 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 world's largest asset managers on its cap table.

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

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

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

One Peak led this $120 million round ($670 million valuation), with participation from Nasdaq Ventures, Deutsche Bank, and the British Business Bank. This is the largest pure equity VC round of the month. Elliptic is building agentic AML/compliance tooling. Read from April's perspective: this is the operational and compliance layer DeFi is constantly 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 of the month, a clean bet on the prediction market and consumer crypto boom track.

Fasset | Series B | Stablecoins/Payments | $51 Million | 2026-05-14

SBI Group led this $51 million round, with participation from Investcorp and Arz Portföy. Fasset is a stablecoin-driven neobank for emerging markets, with ~$32 billion in annualized transaction volume. This is proof of the stablecoin-as-payment thesis, happening where it matters most: the corners of