Since 2022, Ethereum (ETH), as a "blue chip asset" in the crypto market, has seen a significant price performance gap with market expectations. Although its ecosystem still accounts for more than 55% of the locked value in the DeFi field, the price of ETH has been sluggish for a long time, and its growth has been surpassed by emerging public chains such as Solana. It even faces doubts that "the ecosystem is prosperous but the value of tokens has not been realized." This article will analyze the complex logic behind Ethereum’s weakness from three dimensions: market sentiment, technological innovation bottlenecks, and capital trends.
1. Mismatch in market expectations: narrative loss of focus and the “reverse effect” of ETFs
Ethereum was once the core driving force behind the DeFi and NFT waves. However, its dominance has been challenged in recent years as market focus has shifted to AI, RWA (real world assets) and Memecoin. For example, many AI projects and Solana’s Memecoin did not choose Ethereum as their main platform, resulting in its gradual marginalization in the emerging narrative.
At the same time, although Ethereum's Layer 2 (L2) expansion solution has alleviated the bottleneck of main network performance to a certain extent, its feedback effect on the ecosystem is not significant. The "involution" problem in the Rollup camp is particularly prominent, with developers overly focused on infrastructure improvements (such as data availability services) and neglecting innovation at the application layer. This resource diversion not only failed to expand the user base, but instead caused transaction volume and activity to flow to other competitive public chains.
In addition, unlike the influx of funds when the Bitcoin ETF was launched, the ETH ETF saw capital outflows after its listing, partly due to the selling pressure of Grayscale's old products. Paradoxically, however, institutional long-term interest in ETH continues to grow. Bernstein analysts predict that ETH may become the "institutional darling" in 2025 due to mechanisms such as staking income (28% of ETH is staked), smart contract lock-in (7.5%) and ETF absorption (3%). This misalignment between short-term and long-term expectations highlights the market’s confusion about ETH’s ability to capture value.
2. The double-edged sword of technological upgrading: from ”deflation narrative” to ecological imbalance
Technological upgrading has been the core narrative of Ethereum in recent years, but it has also brought many unexpected side effects. Although Ethereum’s multiple upgrades (such as mergers and EIP-1559) have successfully achieved supply deflation, the Dencun upgrade has reduced data storage costs, which has weakened the main network’s revenue source and indirectly affected ETH’s appreciation potential. In addition, after the Cancun upgrade, the community's expectations for shard chains shifted to L2, but the "Stack Strategy" of the L2 ecosystem relied too much on commercial narrative leverage and failed to substantially expand the user base.
Disagreements within the Ethereum Foundation over the development roadmap have exacerbated the technical difficulties. Jesse Pollak, head of Base, criticized the existing route as "too conservative" and called for the 2027 upgrade plan to be brought forward to 2026; developer Dankrad Feist questioned the strategy of "relying solely on L2 expansion" and advocated a large-scale upgrade of the main network. This vacillation in technical direction exposes the problem that Ethereum lacks a "strong leader" like Satoshi Nakamoto. Although Vitalik has repeatedly emphasized that "price is not a priority target", the foundation's behavior of selling ETH is still interpreted by the market as a lack of confidence.
3. Capital game: the struggle between institutional entry and internal selling pressure
In terms of capital trends, Ethereum also faces a complex game.
Despite weak prices, institutional funds are quietly entering the market. The Coinbase report noted that ETH’s limited supply, staking returns, and regulatory compliance make it “the preferred smart contract platform for institutional adoption.” VanEck even predicts that the total amount of Bitcoin held by companies may exceed Satoshi Nakamoto's holdings in 2025, and ETH may regain capital favor due to trends such as stablecoins, tokenization and AI Agents.
At the same time, the selling behavior of the Ethereum Foundation and others also triggered a chain reaction. In December 2024, the Ethereum Foundation was exposed to have cashed out multiple times at high prices, and some people accurately "escaped the top" and transferred more than 100,000 ETH to the exchange, exacerbating market concerns about "insider bearishness." This capital movement hedged against the entry of institutions, causing ETH to fall into a "value discovery" deadlock.
Fourth, VGod Paradox: “Fear of the Bull Market”and the Dilemma of Ecological Transformation
Vitalik Buterin once said in a documentary that he was “afraid of the bull market,” revealing the core contradiction of Ethereum:
· De-financialization Challenge: Although Ethereum’s DeFi culture contributed to its early status, it also led to an over-reliance on financial arbitrage in the ecosystem. Vitalik called for "getting out of the DeFi haze" and turning to practical scenarios that integrate with Web2 (such as prediction markets and identity verification), but progress has been slow.
· Balance between regulation and innovation: The US SEC’s ambiguous attitude towards Ethereum (such as its delay in clarifying its securities attributes) has suppressed institutional confidence. Although the Trump administration's policy easing may bring a turnaround, Ethereum still needs to find a new balance between compliance and decentralization.
5. Future Outlook: Breakthrough and Potential Catalysts
Although Ethereum's price performance may still be constrained by internal selling pressure, market sentiment and narrative vacuum in the short term, its future is still worth looking forward to in the long run.
If Ethereum can embrace the modular trend and position itself as a "settlement layer + data availability layer", while absorbing the high-performance execution layer of chains such as Solana, it may be able to reconstruct the discourse power system. In addition, accelerating the implementation of privacy technologies such as ZK-SNARKs may open up new scenarios such as AI agents and decentralized storage.
In addition, in 2025, the US stablecoin legislation and SEC policy shift may open a compliance channel for ETH. If a collateralized ETF is approved or a physical creation mechanism is introduced, institutional demand for ETH may explode. At the same time, the entry of corporate funds (such as the Trump family treasury increasing its holdings of ETH) and sovereign funds may reverse the capital game pattern.
Ethereum’s weakness is essentially the result of the resonance between the market, technology and capital. Its predicament does not stem from a single factor, but is the inevitable pain of ecological transformation. In the short term, price fluctuations will still be subject to internal selling pressure and narrative vacuum; in the long term, if ETH can find new fulcrums in modularization, compliance and de-financialization, it is still expected to return to the growth track.
As one of HashKey Group’s top ten predictions states, “digital oil” Ethereum is expected to break through the $8,000 mark in 2025. With the accelerated implementation of ETH collateralized ETFs and institutions’ renewed recognition of the value of Ethereum, it will only be a matter of time before ETH’s value is reassessed.
Kikyo
Weatherly
Catherine
Joy
Anais