Ethereum’s price slump at around $2.5K raises questions about network congestion and scalability, threatening its long-term growth prospects.
Ethereum Price Falls Below $2.5K
Ethereum’s price declined to $2,543.53, down 9.6% between Oct. 20 and Oct. 23. This drop erased the previous 10 days of gains. Now trading near $2,500, Ethereum has seen a 6% decrease over the last 30 days. Despite broader crypto market movements, its performance remains concerning, largely due to network-specific issues.
Ether Underperforms the Market
The overall cryptocurrency market saw a 5% decline during the same period, but ETH underperformed. While the broader market is up 1.9% over the past month, Ethereum lagged behind by 8%, raising concerns among investors. High transaction fees and network congestion are key contributors to ETH’s recent struggles.
Ethereum Network Congestion Continues
High fees on the Ethereum network have been a major deterrent for many users. Over the past two weeks, average transaction fees hovered around $4, indicating high on-chain activity. However, this has increased interest in competing blockchains that offer cheaper alternatives, drawing users away from ETH. This issue disproportionately affects smaller investors, while larger investors continue their activities unaffected.
Solana Outpaces Ethereum in Volume
As Ethereum grapples with network congestion, competitors like Solana have taken advantage. According to DefiLlama, SOL recorded $13.4 billion in volume over the past week, a 67% increase over ETH’s volume during the same time. Solana’s rising dominance reflects growing demand for lower-cost alternatives, as Ethereum struggles with scalability.
Decline in Ethereum’s Decentralized Exchange Activity
Ethereum’s decentralized exchange (DEX) volumes have also suffered. In the week ending Oct. 23, DEX volumes on ETH dropped by 13%, despite a broader market uptrend. Popular platforms like Uniswap and Curve Finance saw an 18% decline in activity. Meanwhile, Solana’s Raydium posted a 42% increase in volume, further underscoring Ethereum’s competitive challenges.
Ethereum’s TVL Drops by 5%
Ethereum’s Total Value Locked (TVL) dropped by 5% over the past month, reaching 18.2 million ETH. A lower TVL generally signals reduced confidence in ETH’s supply and demand balance. Validators have also begun withdrawing Ether from staking, further contributing to negative sentiment. Staking Rewards data shows a net decrease of 191,000 ETH staked in the 30 days ending Oct. 23, worth approximately $492 million.
Competing Networks Gain Ground
While ETH’s TVL has fallen, SOL’s TVL increased by 12% in SOL terms, and deposits on the BNB Chain remained stable. Ethereum’s weakening on-chain performance compared to its competitors has raised alarms. The lack of progress on key network improvements, such as scalability upgrades, continues to weigh on Ethereum’s price outlook.
Prague-Electra Upgrade Delays Fuel Uncertainty
The anticipated Prague-Electra upgrade is crucial to Ethereum’s scalability improvements. Initially scheduled for Q1 2025, the upgrade includes the introduction of Verkle trees to reduce node storage and EIP-7251 to improve validator efficiency. However, delays and concerns about whether the upgrade will solve Ethereum’s congestion problems have added uncertainty to the network’s long-term prospects.
Investor Confidence Wanes
Uncertainty surrounding Ethereum’s network upgrades and its competitive position against faster, lower-cost blockchains like Solana has made investors wary. With ETH underperforming the broader market, the upcoming Prague-Electra upgrade needs to deliver solutions to the network’s ongoing congestion and scalability issues to regain investor confidence.
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