Hi, I'm Sei Markun.
While Bitcoin continues to hit all-time highs this year, Ethereum's performance has been lackluster. Priced in BTC, ETH has trended downward since 2023, recently dipping below 0.03 BTC—a first in four years. As someone who believes Ethereum will remain web3's core infrastructure, this downturn raises doubts.
The current market is dominated by Bitcoin due to the explosive growth of US spot ETFs, pushing BTC's dominance above 60% for the first time in four years. While altcoins broadly decline against BTC, Ethereum's underperformance stands out. Let’s explore why and identify potential catalysts for a rebound.
Factors Behind Ethereum’s Decline
1. Rising Competition from New Blockchains
Once the undisputed leader in smart contracts and DApps, Ethereum now faces stiff competition from chains like Solana, which offers superior throughput and lower fees. Solana’s ecosystem thrived during the memecoin boom, with platforms like Pump.fun driving record DEX volumes that surpassed Ethereum’s.
Key developments:
- Trump-themed memecoin (TRUMP) briefly hit a $2B market cap on Solana, attracting new investors.
- Emerging chains (TON, Sui, BASE) are gaining traction with niche applications, while Ethereum lacks compelling new use cases.
2. Challenges from Layer 2 Scaling
Ethereum’s shift to Layer 2 solutions (e.g., Arbitrum, Optimism) has improved scalability but inadvertently reduced L1 transaction volume and gas fee burns. The Dencun upgrade further cut L2 data-writing costs, exacerbating inflation risks by slowing ETH’s deflationary mechanism.
3. Distrust in the Ethereum Foundation
Concerns over transparency and governance persist:
- The Foundation’s assets dropped 40% in its latest report, with ETH comprising most holdings.
- Critics accuse it of dumping ETH without clear disclosure.
- Centralization fears grew after Vitalik Buterin asserted control over team appointments.
Potential Revival Catalysts
1. Staking-Enabled ETFs
Under a potential Trump administration, the SEC may greenlight Ethereum ETFs with staking features—already proposed by 21Shares and Grayscale. Benefits:
- Passive income: ~3% yield could attract bond-like investors.
- Supply squeeze: Increased staking reduces circulating ETH.
2. The Pectra Upgrade (March 2025)
Key improvements:
- Smart EOAs: Wallets gain multisig and social recovery features.
- Higher staking caps: Validators can stake up to 2,048 ETH per node, easing institutional participation.
- Blob capacity doubling: Enhances L2 efficiency but may further lower burn rates.
👉 Track Ethereum’s staking metrics here
FAQs
Q: Why is Solana outpacing Ethereum?
A: Solana’s lower fees and high-speed transactions appeal to memecoin traders and DApps, driving adoption.
Q: Will Pectra fix Ethereum’s inflation issue?
A: While it boosts functionality, Pectra’s L2 focus might reduce ETH burns. Long-term solutions depend on protocol adjustments.
Q: How could ETFs change Ethereum’s market dynamics?
A: Staking ETFs may tighten supply and legitimize ETH as an income-generating asset.
Conclusion
Ethereum’s recovery hinges on executing Pectra successfully and restoring institutional trust. Watch for:
- Regulatory clarity on staking ETFs.
- Progress in addressing governance concerns.