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

Original Author: Ben Lakoff

Original Translation: TechFlow

Foreword: When Bankless founder liquidated all ETH and 19-year-old developers flocked to Solana, the bearish narrative for Ethereum had become consensus. But Ben Lakoff, a partner at BanklessVC, believes this is a replica of Microsoft's "Ballmer era" — a superficially bearish narrative masking solid fundamental growth. With a 30% staking rate, ETF accumulation, and regulatory clarity compressing the circulating supply, crypto regulation has shifted from an existential threat to a legal framework — precisely the time to enter.

Welcome to the May Deal Flow Summary.

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

Ethereum's Ballmer Era

Last month, David Hoffman sold all his ETH at $2,070 and wrote a thoughtful article explaining his reasons. 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." The bullish Haseeb gave the entire bearish narrative a name: This is Ethereum's Ballmer era. The analogy struck a chord with me.

This framework is too good to let go.

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

The Bearish 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"… designed to distribute blockspace at cost. L2 profit margins hit 98% of blob revenue. The gas limit is gradually rising to over 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 is mechanically correct. The protocol is designed to be blockspace abundant, 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 (perhaps not Ethereum, not crypto). Resnick's "risk-averse EF" is the institutional version. The Foundation, at a time when it needs to stay competitive, is piously focused on preserving network integrity.

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

What Microsoft's Ballmer Era Actually Delivered

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

That's the joke I remember, but it misses something. Microsoft's stock was flat for over a decade, while the underlying enterprise franchise was relentlessly compounding. Dividends did most of the heavy lifting. Office and Windows licenses 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 often continues to compound through its own bearish narratives. The bearish narrative is usually correct on the surface. Just not enough to short.

Ethereum remains 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 just on Ethereum anymore (40% share), down from ~85% a year ago. USDC exists on 34 chains. Western Union chose Solana over Ethereum for USDPT. The default institutional choice 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 Crumbling

This is the part the bearish narrative mostly ignores.

Approximately 30% of ETH is staked. Treasury companies hold another 6%+ and growing. BitMine alone holds 4.47% of the supply and publicly targets 5%. Spot ETFs continue to absorb more. The SEC/CFTC ruling on March 17 classifying staking rewards as non-securities unlocked the entire staking ETF pipeline. Five more 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 spike. Net issuance is ~0.23% annualized. The circulating supply is shrinking faster than that, with bids on most days from these receiving ends. The math doesn't care if ETH is boring.

So David is right; ETH won't reprice based on fee burning. The roadmap chose abundance. But ETH can reprice due to 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 shifted from an existential threat to a legal framework.

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

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

In previous bear markets, we genuinely worried if this ecosystem would even 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 "blockchain wins" eventually looking like Canton, JPM Onyx, a DTCC 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 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 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 can't 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 not all of it flows to ETH, but the institutionalized, regulated, "needs credible neutrality" mega-slice 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 is growing. Crypto's underlying market is growing rapidly, in the most regulator-blessed, institutional way.

The Barbell Strategy: Bullish on the Trend, Not Maximalist

The bearish 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 grind sideways or lower for a while before turning.

The positioning 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 where you allocate your capital always involves trade-offs. I'm not a maximalist, but I'm still bullish on ETH. Here's why:

Circulating supply is shrinking faster than issuance.

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

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

The bearish narrative is so loud it's now consensus. Consensus bearishness after a 60% retracement from $2,000 has a poor historical track record.

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

I see the trade as "David is partially correct and ETH still works." Microsoft worked under Ballmer. Crypto adoption is winning. The asset you want to own most is the one most deeply embedded in the part of crypto where the US government just spent two years making 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 the dollar on-chain. In that world, how could 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 the crux of 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 for the earliest pre-seed stages.

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

Over 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 was looking elsewhere.

Buckle up. Now, shifting 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 to $178 billion in six months, with institutional volume up 800%. Kalshi is CFTC-regulated rather than 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 purchase a 4% stake in Dunamu, the operator of South Korea's largest crypto exchange Upbit, from Kakao for approximately $408 million (612.8 billion KRW). Each buyer cited positioning ahead of South Korea's Digital Asset Basic Act for KRW-pegged stablecoins, tokenized securities, and on-chain settlement. This is part of a May sprint transferring ~14% of Dunamu's stake to Korean giants like Hana and Hanwha. Closing June 19.

Circle (Arc) | Token Presale | Infrastructure/Stablecoin | $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 invested $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 as shareholders.

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

Ripple secured $200 million in debt financing from funds managed by Neuberger Specialty Finance to expand the lending capacity of its multi-asset prime broker, Ripple Prime, using existing institutional loans as collateral. Since Ripple acquired the platform in 2025, Ripple Prime's revenue has tripled year-over-year. 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 ($670 million valuation), with participation from Nasdaq Ventures, Deutsche Bank, and the British Business Bank. This is the month's largest pure equity venture round. Elliptic is building agentic AML/compliance tools. Read this post-April: It's 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 is a crypto/fiat on-ramp and off-ramp powering financial platforms like Polymarket. The largest consumer/payments venture round of the month, a clean bet on the prediction market and consumer crypto euphoria track.

Fasset | Series B | Stablecoin/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 real-world validation of the stablecoin-as-payment thesis, happening where it