3 causes why Ethereum loses value

The NO moment

The first reason behind the ETH problems is the period that the altcoins are experiencing. In fact, taking a look at the last 30 days, the majority (over 70) of the cryptocurrencies among the top 100 by capitalization are in loss. From CRO to ADA, up to ETH, many coins and tokens have a minus sign in front of them.

Looking at the last 60 days, the result doesn’t change; on the contrary, the loss involves even more cryptocurrencies.

After the end-of-year rally, several cryptocurrencies have cooled off a bit and found themselves losing value inexorably. At various times, these cryptocurrencies have tried to react, even recording excellent performances. However, the selling pressure has been higher overall.

Ethereum is behaving exactly like this and has taken a heavy blow: from its peak at the beginning of December, the coin has lost about 35% of its value, entering a short-term bearish phase that is struggling to find a bottom.

We also note the volumes, which are far from exciting, testifying to the lack of interest in coin.

On a purely technical level, the first thing we need to do is find the bottom. The level we’re at now doesn’t represent significant support, but in the event of a loss we’ll find better and time-tested “lines of defense” (such as $2,400).

Let’s move on to the other factors to better consider what’s happening.

The growth of competitors

Competition in the sector is growing and the Ethereum team cannot expect to be immune to these developments.

The network has always been a benchmark for innovation, launching major trends such as DeFi and NFT. It still retains this role as an “incubator” of new developments, but technical limitations, costs and other factors are having a significant impact on its leadership.

Some names are pushing hard, first and foremost Solana. After years of technical problems and doubts, the blockchain super performer has finally reached a level of maturity that guarantees a certain reliability. There is still ample room for improvement and the various projects are looking at the ecosystem with interest.

Ethereum, which is used to being the crypto center of everything that revolves around smart contracts, is no longer the only alternative: some investors and users are moving funds to more trendy platforms.

The situation is not compromised: the team has the opportunity to recover and return to positioning the network at the top of preferences. But they must act promptly.

Ethereum fragmentation and other

Then there are other critical issues to address, including blockchain fragmentation.

This blockchain has always had obvious operational limitations and high usage costs. Several solutions have been adopted to solve the problem, including the transition to the Proof-of-Stake consensus algorithm. However, this was not enough (it was known from the start) and layer 2s have become the solution par excellence.

However, what was supposed to be a positive turning point could turn into a threat.

Fragmentation is a real problem for Ethereum. With dozens and dozens of layer 2s already available, plus others in development, the average user finds themselves dealing with a labyrinth of chains isolated from each other, bridges, platforms that don’t support all L2s, and so on. Even just buying a token can become a challenge for those with less experience, discouraging operativity from the start and pushing the masses to opt for other solutions, such as Solana.

But fragmentation is not only a question of user experience: liquidity also has problems, because it ends up “trapped” in the various L2s, sometimes it becomes difficult to move it and the efficiency of the entire ecosystem is reduced.

According to Vitalik Buterin, Ethereum cannot afford to abandon layer 2. The founder of Ethereum was clear: developers must exploit the potential of L2 to improve scalability and L1 for stability, trying to find solutions that make the ecosystem increasingly easy to use and interconnected.

One hope in this sense is ERC-7683 (created by Across and Uniswap Labs). It aims to standardize user requests and make cross-chain information exchange simple.

The positive note

Let’s finish on a positive note, otherwise it might seem like Ethereum is about to go bankrupt. Yes, there are problems, but as we have seen, there are also possible solutions. Let’s not forget that this giant has been able to move very well over time and its long-term objectives remain intact; it needs to make adjustments and get back on the right track.

Meanwhile, although the ETH coin is struggling, we note that for the first time the volumes entering ETFs have exceeded those of bitcoin. There are also big names that are betting heavily on this coin: this is the case of Goldman Sachs, which in Q4 2024 increased its positions by 2,000%. In general, institutional interest is showing positive signs.

On the technical side, the network gas fees have plummeted to five-year lows. While this is due in part to low activity, we also note the many improvements that have taken place on various layer 2s.

Then there’s the Pectra update, expected in April on the mainnet and being launched on the main testnets. Pectra will increase blob space, reducing gas fees; it will also improve L2 scalability and Verkle Trees will arrive, new data structures that should improve efficiency.

Finally, keep an eye on the Foundation: the community is clamoring for changes at the top and Vitalik seems willing to grant this wish.

There’s a lot of new developments in the pipeline, we just have to follow them!

Where to buy Ethereum?

The coin ETH is available on almost all the platforms in circulation, whether centralized or decentralized.

Exchanges are the best choice for those who are not already operating in the crypto world, or for anyone who wants to deposit fiat currency (euros, dollars…) easily and without spending a fortune in commissions.

Among the best platforms in this family we mention Binance (the world’s largest CEX by volume), Coinbase (super intuitive UX), Bybit (very interesting alternative), Bitget (many tools available) and Crypto.com (ultra innovative reality). By clicking on the links provided above, you will access our tutorials and find referral links to sign up and benefit from the advantages reserved for our readers.

Outside the centralized world, the choice is still abundant. We can buy ETH directly on the layer 1 blockchain; however, to save money on gas fees, we recommend taking advantage of the many layer 2 ones such as Optimism and Arbitrum, relying on the main DeFi platforms such as Uniswap (which has now launched its Unichain).