Ethereum is facing a challenging period with its market dominance at a record low since 2020, leading to a decline in ETH token price. What factors are contributing to this crisis in the crypto space?
Firstly, it is essential to understand why a decrease in the price of Ethereum poses a challenge to the entire network. Ethereum operates on a “proof of stake” system. This means users have to stake ETH to ensure the proper functioning of the blockchain. Those who stake receive an economic incentive in return.
However, if the price of Ether drops too much, this incentive is significantly reduced. This makes the network less secure. Fewer people are motivated to keep their ETH locked in staking. Reduced security leads to a loss of user confidence, potentially creating an additional negative impact on the cryptocurrency’s value.
Another significant issue is the growing competition. Ethereum has been a pioneer in decentralized finance (DeFi). Despite continuing to dominate this sector, its position is threatened by the emergence of blockchains like Solana, Cardano, or Avalanche, offering faster, cheaper, and more scalable transactions. These new competitors are attracting more developers and users, reducing Ethereum’s once absolute dominance.
Moreover, Ethereum recently underwent significant technical upgrades. This includes the well-known “London” upgrade, which greatly reduced transaction fees previously deemed too high. Paradoxically, too low fees have proven to be a double-edged sword: lower fees also mean fewer ETH burned, a mechanism designed to limit the overall supply of Ethereum and support long-term price.
This mechanism involves a portion of fees from each transaction being permanently destroyed by sending them to an inaccessible address, making them effectively unrecoverable and reducing the supply of Ethereum. Consequently, excessively low fees currently limit the network’s economic durability.
From a macroeconomic perspective, global geopolitical situations and restrictive monetary policies have reduced investors’ risk appetite, heavily impacting the cryptocurrency market, including Ethereum. This overall economic scenario has led many investors to sell their ETH, further exacerbating the price decline.
The result of this complex situation is evident when observing Ethereum’s “dominance,” its market share compared to the entire crypto sector. Today, this value has dropped to 7.55%, reaching levels not seen since January 2020, approaching its historical lows.
Even more striking is the direct comparison with Bitcoin. On the trading pair with Bitcoin ETH/BTC, Ethereum has lost about 80% from its 2021 highs, with a current value below 0.02. This significant decline clearly shows the tough period Ethereum is currently going through.
Another pressure point comes from the stablecoin ecosystem, which has reached a record value of $132 billion on the Ethereum network. However, contrary to expectations, this growth has not generated a proportionate demand for ETH itself, leaving many analysts puzzled about the real ability of stablecoins to support the cryptocurrency’s price.
Finally, significant liquidations of leveraged speculative positions in DeFi platforms have also played a crucial role. Many investors had used leverage, taking bullish positions convinced that Ethereum would continue to rise. When the market started to decline, many of these investors were forced to sell, triggering a selling cascade that further intensified price drops.
Gaston has been a writer for over 7 years and a passionate cryptocurrency enthusiast since 2020. He loves exploring the crypto ecosystem and is now dedicated to sharing his insights and discoveries through InvestX.
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