Bloomberg Intelligence’s crypto market analyst Jamie Coutts is warning that Ethereum (ETH) competitors may soon fizzle out.
Coutts tells his 5,938 X followers that ETH competitors put up abysmal second-quarter financials this year, which he says indicates these projects are likely doomed.
According to Coutts, there are similarities between “zombie” companies traded on the stock market and layer-1 blockchain projects that are seeing their demand plummet.
“The alternative L1 (layer-1) blockchain landscape reminds me of zombie companies (EBIT [earnings before interest and taxes] > Interest Expense) in the fiat world. I don’t see how crypto avoids a massive die-off in the not-too-distant future.
Insufficient demand (fees) + high inflation = negative profitability.”
According to his chart, Ethereum’s network pulled in more than $500 million in profits in the second quarter of 2023, while other layer-1 projects saw a decline of more than $1.5 billion.
Coutts says that “zombie” companies and layer-1 projects can attract investor interest for their potential. But he says with the Federal Reserve’s high interest rates, such speculative investments are less appealing, likely dooming many layer-1 blockchains.
“For clarification, 23% of Russell 3000 are by definition ‘zombie’ companies. People will pay for potential growth and for some that will eventually result in profitability. The problem is the new rates regime – there will inevitably be attrition. Same for Alt-L1s, some will survive and thrive but a lot will need to change course.”
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