Ethereum's Drop Below $2.5K Sparks Concerns About Its Fundamentals

Ethereum's price decline mirrored the broader crypto market sell-off, but its sustained weakness is attributed to network-specific factors.

Source: www.cnbc.com

From Oct. 20 to Oct. 23, Ether prices dropped 9.6%, following a sharp rejection at the $2,700 mark, wiping out the previous 10 days of gains. With Ether now stabilizing around $2,500, its 30-day performance remains negative down 6%. The likelihood of ETH regaining the $2,800 support is fading. The on-chain data shows that high transaction fees are driving activity away from the Ethereum network, reducing demand for native staking. Part of Ether’s recent drop is linked to the 5% decline in total cryptocurrency market capitalization over the two days ending Oct. 23. However, the broader market is still up 1.9% over the last 30 days, meaning ETH has underperformed by 8%, which explains the lack of confidence among Ether investors.

Ethereum Network Congestion And The Absence of A Clear Solution

While Ethereum's average transaction fees of $4 over the past two weeks indicate strong on-chain activity, they also make lower-cost blockchain competitors more attractive. This is less of a concern for large investors or whales engaged in arbitrage, but it significantly limits smaller use cases. According to data, Solana recorded $13.4 billion in volume over the past seven days, 67% higher than Ethereum’s during the same period. The gap between the two networks has widened, as their volumes were comparable before October. More notably, decentralized exchange (DEX) volumes on Ethereum fell by 13% in the week ending Oct. 23, even as the broader market gained momentum. Both Uniswap and Curve Finance saw activity on Ethereum decline by 18%, while Solana’s Raydium posted a 42% increase, and Lifinity's activity surged 77% compared to the previous week.

In terms of total value locked (TVL), Ethereum’s performance has disappointed investors, with TVL reaching 18.2 million ETH, down 5% from a month ago. Fewer deposits are generally seen as negative for ETH's supply-demand dynamics, particularly as validators have been withdrawing ETH from staking. Staking Rewards data shows a net decrease of 191,000 ETH staked over the 30 days ending Oct. 23, valued at $492 million. Meanwhile, Solana’s TVL rose by 12% in SOL terms, and BNB Chain’s deposits remained stable. Adding to investor concern is the uncertainty surrounding the Prague Electra upgrade. Initially expected in Q1 2025, the upgrade aims to improve scalability with Verkle trees for reducing node storage and EIP 7251 to boost validator efficiency. However, there are worries about potential delays and whether these changes will adequately resolve Ethereum’s congestion issues, a critical factor for ETH's long-term growth.

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