Ethereum, once the undisputed leader of the crypto revolution, is now grappling with a prolonged slump. While Bitcoin and other altcoins show flashes of resilience, ETH has repeatedly stumbled, crashing below the critical $1,500 support level.
Analysts point to a trio of forces driving this decline: shrinking network activity, macroeconomic headwinds, and technical setbacks. Here’s what’s behind Ethereum’s struggle and why a recovery remains elusive.
1. Shrinking Network Activity
Layer-2 Migration Slashes Mainnet Demand
Ethereum’s mainnet, once bustling with transactions, is losing its appeal. The March 2024 Dencun upgrade slashed Layer-2 (L2) fees, diverting activity to platforms like Base and Arbitrum. Base now processes over 80 transactions per second, dwarfing Ethereum’s mainnet volume. Following this, Ethereum’s fee revenue plummeted 60% in early 2025 to just $208 million, its lowest since 2020. Fewer transactions mean less demand for ETH, eroding its perceived utility.
Inflation Fears Rise as Burn Rate Stalls
Ethereum’s shift to proof-of-stake in 2022 introduced a fee-burning mechanism to curb supply. However, slowing mainnet activity has weakened this deflationary pressure. In Q1 2025, 77,400 new ETH entered circulation, but only 3,728 were burnt. This imbalance has reignited inflation concerns, pushing more sellers into the market. With supply outpacing demand, ETH’s price faces relentless downward pressure
2. Macroeconomic Risks and Institutional Exodus
Global Trade Tensions Spook Investors
Broader economic turbulence has hammered risk assets like Ethereum. Recent U.S. tariff threats against major trading partners sparked fears of a global slowdown. Investors fled to safer havens, leaving ETH vulnerable. The token plunged 46% in Q1 2025, while Bitcoin dipped just 10%. On the other hand, ETH’s price-to-Bitcoin ratio hit a five-year low, signalling fading confidence in its growth narrative.
Ethereum ETFs Bleed Millions
Institutional interest, once seen as ETH’s salvation, has fizzled. Spot Ethereum ETFs bled $94.1 million over two weeks in April 2025, contrasting sharply with Bitcoin’s $13 million inflows. The lukewarm response underscores doubts about Ethereum’s role as a cornerstone asset. “Investors see Bitcoin as digital gold, but ETH’s value proposition is murkier,” noted one analyst.
3. Technical Troubles and Upgrade Delays
Pectra Upgrade Stumbles, Testing Investor Patience
Ethereum’s highly anticipated Pectra upgrade, designed to boost efficiency and scalability, has faced repeated delays. Failed testnet trials in March 2025 pushed its launch to May or later. These hiccups have rattled investors, highlighting Ethereum’s struggle to evolve swiftly. Competitors like Solana, meanwhile, capitalise with faster, cheaper transactions, luring developers and users away.
Layer-2 Success Undercuts Ethereum’s Core Revenue
Ironically, Ethereum’s push to empower L2 networks is backfiring. While L2s like Base thrive, they divert fees and activity from the mainnet. Pectra’s expansion of data capacity for L2s could further reduce Ethereum’s revenue, weakening the case for holding ETH. Analysts estimate Base alone has syphoned $50 billion from ETH’s market cap, exposing flaws in its value accrual model.
The Domino Effect
Ethereum’s derivatives market echoes the gloom. Open interest, a gauge of trader participation, plunged 48% from its January 2025 peak to $16.7 billion. Simultaneously, perpetual funding rates turned negative, signalling overwhelming bearish sentiment. Short sellers now dominate, paying longs to maintain positions. This cycle fuels liquidations, sparking cascading sell-offs.
On-chain activity paints a dire picture. Unique active wallets interacting with Ethereum dApps dropped 33% in 30 days, while rivals like Tron saw gains. Transactions on the network nosedived 40.5%, far steeper than declines on Solana or BNB Chain. Without a surge in user engagement, ETH’s price risks further erosion.
Will Ethereum Hit Rock Bottom?
Technical indicators hint at deeper losses. ETH’s price recently dipped below its “realised price,” a level reflecting the average cost basis of all holders. Historically, this precedes brutal sell-offs, like the 51% crash after Terra Luna’s collapse. Analysts warn ETH could bottom near $1,000 before stabilising.
Yet not all hope is lost. Whales have quietly accumulated ETH during the dip, and upgrades like Pectra could revive momentum if executed smoothly. For now, Ethereum remains in a precarious dance with macroeconomic forces and its own technical hurdles.
Can Ethereum Regain Its Edge?
Ethereum’s future hinges on reversing network decay, navigating macro storms, and delivering upgrades without delays. While long-term believers eye a rebound to $5,000, short-term headwinds loom large.
Investors must weigh Ethereum’s pioneering role in smart contracts against rising competition and internal challenges. In crypto’s volatile arena, ETH’s next move could define its legacy or cement its decline.
Written By Fazal Ul Vahab C H
