Key Takeaways:
ETH has plummeted more than 63% since December, sparking concerns the cryptocurrency may be in trouble. Analysts blame the decline on “subdued network activity,” low transaction fees, a slower burn rate, and a high inflation rate. Long-term, they believe the digital asset remains “strong and promising.”The price of Ethereum (ETH) has plunged more than 63% since mid-December, sparking concerns the second-largest cryptocurrency and its underlying Layer One (L1) blockchain may be facing a crisis. Or is it?
At the time of publication, Ether, the eponymous native token of the Ethereum network, is trading at $1,486, down from nearly $4,000 on Dec. 17.
On Monday, ETH fell as much as 16% to $1,490 as markets tumbled on fears of Trump’s reciprocal tariffs. It later pared some of those losses to end the day 8% in the green. The token has lost nearly 70% of its value since hitting a peak of about $4,900 in 2021.
A new report from CryptoQuant blames the decline on “subdued network activity,” low transaction fees, a slower burn rate, and a high inflation rate.
“Ethereum’s recent underperformance can be largely attributed to diminished network activity, as evidenced by declining active addresses and reduced transaction fees,” the report says.
Interest in ETH has declined over the last three months. On-chain data shows that the number of active addresses on Ethereum – or those actively engaging with the platform – fell from about 580,000 in January to just 333,000 at the end of March.
Source: CryptoQuantLikewise, the cost of sending a transaction over the Ethereum blockchain has reached record lows. ETH gas fees are down 95% in one year. Normally, that wouldn’t be a bad thing for users. But the decline is fueled by a spike in the annual supply of ETH — not a good omen.
CryptoQuant said all these factors have led to the burn rate falling “to its lowest level since the Merge, further exacerbating the inflationary pressures on the asset since the Dencun upgrade.”
Source: CryptoQuantA certain amount of ETH is destroyed – or “burned”- from the Ethereum network every day to reduce supply. This so-called “burn rate” is currently very low, which has resulted in more Ether being issued than “burned.”
For example, 3,670 ETH were “burned” over the last 30 days, down 50% since September. Meanwhile, some 77,667 ETH, valued at $119.8 million, were issued in the same period, according to Ultra Sound Money data.
Ethereum Sees ‘Noticeable Weakness’
Ethereum co-founder Vitalik Buterin previously praised an upgrade to the blockchain called “Dencun” for saving users up to $100 million in fees.
However, the March 2024 update resulted in lower gas fees and fed Ethereum’s inflationary cycle. Since the upgrade, the number of tokens entering into circulation has increased by over 533,986 ETH, according to Ultra Sound Money.
And in the last three months, Ethereum supply has grown at an average rate of 2,201 ETH per day. Per this data and current Ethereum network activity, the annual inflation will be around 946,000 ETH, worth $1.46 billion at the current price, with an inflation of 0.75%.
That compares with Bitcoin’s inflation rate, currently fluctuating at 0.8%. Solana’s inflation rate stands above 8%, which is much higher than BTC’s. The higher rate reflects Solana’s strategy to rapidly expand its ecosystem.
“ETH has shown noticeable weakness in the current cycle,” said Matteo Greco, senior associate at London-based crypto investment firm Fineqia.
It is “underperforming several major altcoins like Binance Coin (BNB) and Solana despite a muted altseason compared to previous years,” he told Cryptonews.
Greco said the 65% decline in ETH’s market cap since 2021 suggests the token’s “underperformance is not merely a result of inflationary effects but rather stems from weaker price action and reduced trading activity.”
According to the Fineqia analyst, the narrative around Ethereum has in the last two years gone from Ethereum potentially surpassing Bitcoin in market cap to when an altcoin such as XRP, BNB, or SOL might overtake Ether.
This “highlights how Ethereum’s position in the market has weakened compared to the broader digital asset landscape,” Greco says, adding:
“Historically, ETH was seen as the ‘silver’ to Bitcoin’s ‘gold,’ but with lower fees and a Proof-of-Stake (PoS) model, Ethereum now resembles many of its rivals, leading users to explore alternative ecosystems.”
Ethereum in Identity Crisis as Revenue Plummets 99%
Ethereum has not always been inflationary. In 2022, it moved to a more energy-efficient operating system in a process dubbed “The Merge“. By the end of March 2024, the number of tokens entering into circulation had declined by over 452,000 ETH.
The Dencun upgrade changed all this. For Greco, part of the problem lies in Ethereum’s switch from the Proof-of-Work mechanism to PoS, a major “structural change” that may have had unintended results for the network.
He spoke about how the transition fundamentally changed ETH to the point of struggling to set itself apart from rivals, affecting market sentiment.
“By aligning with the broader market through Proof-of-Stake, Ethereum may have inadvertently diluted its unique positioning.”
While Bitcoin has established itself as ‘digital gold,’ and Solana became a mass-market, user-friendly network, Ethereum is still finding its “identity,” Alexander Guseff, CEO of crypto payments firm Tectum, tells Cryptonews.
The blockchain has also been undone by internal conflicts, key leadership departures, and controversial statements.
Greco cited Buterin’s remark, – “The person deciding the new Ethereum Foundation leadership team is me,” – as one example of controversies that have “fueled uncertainty.”
As the Fineqia senior associate puts it:
“This has contributed to a decline in developer and trading activity, reducing revenues for decentralized applications and driving Ethereum’s inflation rate higher than expected post-Proof-of-Stake transition.”
The decline in revenue, which experts say mainly comes from sequencing rights (the right to order transactions and extract MEV) and priority fees, has rendered a 2021 Ethereum upgrade called “EIP-1559” ineffective.
The update introduced a “fee burning” mechanism meant to keep the ETH supply in check, preventing the cryptocurrency from becoming inflationary. But lower transaction volumes on Ethereum have led to weaker demand for ETH, which is needed to pay for gas fees.
According to Token Terminal’s data, Ethereum’s Layer 1 network revenue has plunged 99% over the past six months.
Data reveals that lower transaction fees on Layer 2 blockchains such as Arbitrum One, Base, and StarkNet have increased usage, but also driven down the revenue on the Ethereum Layer 1 network.
The decline comes after one of ETH’s most key revenue earners, Uniswap, moved to its own blockchain in October. Since then, Uniswap’s share of DEX trading volume on Ethereum has dropped from 44% to 39%, data from Dune Analytics shows.
‘Growing Pains, Not an Existential Crisis’
There are other factors working against ETH. The much-touted Ethereum spot exchange-traded funds (ETFs), seen as a way to onboard reluctant institutional investors, have not lived to their billing, experts say.
Ethereum ETFs have attracted only $2.4 billion in total net inflows since trading started in July last year. By comparison, Bitcoin spot ETFs have amassed $36 billion in new money, according to Sosovalue data.
As Amitej Gajjala, co-founder and CEO of Ethereum and Bitcoin restaking platform Kernel DAO, tells Cryptonews:
“One of the major issues with ETFs is that they can’t be staked, which limits their appeal to traditional investors who might otherwise be drawn to blockchain investments for their potential dividend-like returns.”
He said, if activated, staking returns could drive traditional investors’ interest in ETH – something that he believes will lead to an “influx of capital” into the asset.
So, is Ethereum in a crisis?
“Not really,” Rajath KM, CEO of crypto staking platform Stader Labs, said in an interview with Cryptonews.
“Ethereum is experiencing growing pains, not an existential crisis…this current downturn represents yet another phase in ETH’s evolution rather than a terminal decline,” he added.
His comments were echoed by Guseff, the Tectum founder, who said:
“Ethereum’s dip is less about its fundamentals and more about the ripple effects of larger macroeconomic trends.”
He noted that since Trump came to power, financial markets have seen “significant uncertainty” due to his wider economic policies like increased tariffs and a push for local manufacturing, which have rattled investors.
“As a result, we’re seeing a pullback from risk assets across the board, and Ethereum is no exception,” Guseff detailed.
The ETH situation is more “complicated” for Dmitrii Petrov, tech product manager at blockchain server provider GetBlock.
Speaking to Cryptonews, Petrov said, “In some ways, yes,” ETH is in a crisis “because there’s a lot of competition from other blockchains, and the price of Ethereum can go down a lot.”
“But in other ways, no, because it’s still the main place where many important crypto projects are built. They keep making it better with upgrades. So, it’s more like a tough and changing time, not a complete crisis.”
Can It Recover?
For Gajjala, the Kernel DAO executive, Ethereum remains “the dominant player in DeFi and NFTs by a wide margin,” with $233 billion in stablecoins and a total value locked “that is eight times that of any other blockchain.”
He said together with zkSync, Ethereum controls around $7 billion of the $8 billion in real-world assets. Gajjala said the upcoming Ethereum Pectra upgrade on May 7, which aims to tackle major issues like gas fees, “will further scale the network.”
“Ethereum is [also] stepping up its marketing efforts by partnering with platforms like Apple TV and Amazon Prime for the launch of ‘Vitalik: An Ethereum Story.’ This is a clear sign that Ethereum’s ecosystem is expanding beyond just technical developments, into mainstream visibility.”
According to Georgii Verbitskii, founder of crypto investment app Tymio, “Ethereum is still strong and promising from a long-term strategic standpoint.”
“The current performance reflects a changing sentiment,” Verbitskii told Cryptonews. “Also, the correction resulted from inflated expectations appearing after Trump’s comeback. Now, prices are getting back to normal, reasonable levels.”
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