Ethereum (ETH) Is Having a Tough Time

input: Ethereum is having a tough time. There’s no denying it. It’s not only crypto Twitter (now X) that’s giving Ethereum a hard time.

Ethereum has been having a tough time. There’s no denying it. It’s not only crypto Twitter (now X) that’s giving Ethereum a hard time. More importantly, on chain data give proof that things are not going that well.

The $ETH-$BTC chart doesn’t look good. $ETH is not holding up well, or, at all.

In December last year, the $ETH price was still above $4k. Now it’s $1,600. $ETH ETF outflows also keep going on. Network activity is down by 33%. On the other hand, competitors keep gaining ground. Users and funds are migrating to other L1s.

So, what’s the story here, Ethereum? Time to take a closer look, to see if it’s dying or rebuilding.

What’s Happening at Ethereum?

There are many things happening at Ethereum. However, they are not all that positive. It still has the first mover advantage, but that is also crumbling. On-chain data show a negative trend for almost every important metric for the chain. Let’s take a look at some of these data in more detail.

Developer Activity Is Dwindling

Miles Deutscher points out that developer activity in crypto has dwindled. Currently, it’s hitting the same lows as in 2018. He mentions various factors for this. For example, AI is more interesting, so devs move there. However, this seems to hit Ethereum harder than other chains.

Source: X

$ETH OGs Are Leaving

$ETH OGs are selling their bags. Lookonchain gives various examples on X.

In general, according to Glassnode, 74% of $ETH holders are underwater.

Funds Migrations to L2s and Other L1s

Other users are not selling their $ETH, however, they migrate to other L1s. The most popular L1s are Solana, Sui, and Hyperliquid. We see monthly net outflows of around $2.5 billion. These also include L2s. For example, Base and Arbitrum.

Source: Artemis

$ETH ETFs

This also brings us to the $ETH ETFs. These have been negative for weeks now. The reason is simple. Running an Ethereum validator is complicated and expensive. The rewards are between 3% and 4%. On the other hand, institutions prefer Treasury bonds. These earn over 4%.

How Do L2s Fare?

How are the Layer 2’s working out? First for Ethereum, but also for themselves?

Ethereum saw the Layer 2s as a solution to help it with scaling. L2s also offered lower transaction fees. However, in the process, activity on the Ethereum seems to be dying. Most activity happens on a handful of L2s and on competitive L1 chains.

So, what started out as a good solution, seems to be backfiring now. Ethereum fees have dropped, true. Transaction fees on Ethereum are now in general below a Dollar. For Ethereum, not bad. However, the competing L1s offer transaction fees at a fraction of a cent. The transaction fees on L2s are similarly low as on competing L1s. So, why would you want to use this chain at all? See the picture below.

Source: Grow the Pie

Ethereum also still has its scalability issues. TPS is still around 14. Solana and Sui have daily TPS of around 4,000. Their theoretical TPS is much higher. That’s more like 65,000 for Solana and 300,000 for Sui.

The L2s themselves didn’t do that great, though. Many launched in 2024. Some had juicy airdrops. If you sold those airdrops, you did well. Holding the bags was not a good idea. Last year, these tokens all closed in the red.

Even Arbitrum (-44%) and Optimism (-41%) had a tough time last year. These are two top performing L2s.

Source: Oak Research

Now, if we look at revenue, most struggle to get $1 million profit in a year. Others even run at a loss. So, the situation for L2s is also bleak. The number of users remains the same, but there’s too much diversification going on.