Ethereum has been underperforming in recent weeks, causing concerns among investors about the future of the second-largest cryptocurrency. The price of Ethereum has been hovering around the $3,100 level without any significant upward movement, indicating weak fundamentals that could lead to a price decline.
Markus Thielen, Head of Research at 10x Research, has highlighted some troubling trends in Ethereum’s price. Despite maintaining a high correlation with Bitcoin at 95%, Ethereum has failed to keep up with Bitcoin’s new all-time highs. In the previous bull market, Ethereum’s price surged due to the emergence of sectors like decentralized finance (DeFi) and non-fungible tokens (NFTs), driving up demand for ETH. However, Ethereum has struggled to sustain this momentum due to delays in implementing necessary upgrades.
The delay in the Dencun upgrade, which addressed high gas fees, came too late as users had already moved to Layer 2 networks by the time it was introduced in 2024. Other Layer 1 networks, like Solana, have seen increased user adoption during this time. The weak fundamentals of Ethereum are not only impacting its price but are also hindering broader fiat inflow into the crypto ecosystem, affecting Bitcoin as well.
Thielen also noted a decrease in stablecoin transactions on the Ethereum network, with other blockchains like Tron now dominating in this area. Additionally, Ethereum’s issuance has become inflationary again, reversing the deflationary trend seen after the London Hard Fork in 2021. With more ETH being issued than burned in recent months and staking rewards dropping below Treasury Yields, Ethereum is facing challenges in maintaining bullish sentiment.
Based on these factors, Thielen suggests taking a bearish stance on Ethereum, recommending a short position in ETH over a long position in BTC. He believes that Ethereum’s fragile fundamentals are not yet reflected in its prices, making it a risky investment choice at this time.