4 things must happen before Ethereum can reclaim $2,600
Ether (ETH) has faced significant challenges since its price dipped below $2,600 on February 24, 2023. The cryptocurrency has struggled to recover and has seen over $918 million in leveraged long liquidations within just 15 days following its recent correction toward the $2,000 mark, as reported by CoinGlass. This downturn has raised questions among traders about what needs to occur for ETH to break past the resistance level of $2,500.
Throughout this period, Ether has underperformed compared to the altcoin market by approximately 10%. This decline has been particularly troubling for investors, especially following a surge in memecoins that has favored Ethereum’s rival, Solana (SOL). This phenomenon suggests that multiple underlying factors are inhibiting ETH’s price recovery, and addressing several key issues is crucial for Ether to regain its bullish momentum.
Ethereum’s Upgrades and Increased Competition
The anticipated Pectra upgrade on the Ethereum network has been met with skepticism. Critics argue that it may not sufficiently reduce base-layer transaction fees or enhance usability to foster a significant turnaround. Analysts also highlight a critical lack of interoperability across various layer-2 solutions, which impacts liquidity and user accessibility.
Further complicating matters, recent reports of empty blocks on the Ethereum testnet have heightened risk perception during an already tenuous time for investors. Even if these issues are thought to be unrelated to the upcoming upgrade or easily resolved, fears of potential delays could negatively impact market sentiment.
Moreover, the emergence of competitors such as Berachain—a modular layer-1 project focused on liquidity integration and governance for decentralized finance (DeFi) applications—has also disappointed some ETH investors. Berachain has managed to attract over $3 billion in total value locked (TVL) as tracked by DefiLlama.
Similarly, the perpetual futures application Hyperliquid, operating on its own blockchain, has generated significant traction, surpassing $2.8 billion in open interest and leaving competitors on the Ethereum network behind. The evolving competition landscape suggests that Ethereum’s path to recovery hinges on demonstrating clear, practical advantages for users and projects.
Weak On-chain Activity and Institutional Demand
Institutional investor demand shows a noticeable decline, as evidenced by spot exchange-traded fund (ETF) flows that were negative for nine of the last ten trading days, resulting in $406 million in net withdrawals. Analysts had speculated that demand might increase with the anticipated approval of native staking on Ethereum ETFs. However, that projection has weakened, given that Ethereum’s supply is increasing at a rate of 0.7% annually.
Lower demand for blockchain processing has also adversely affected the burn-fee mechanism, making Ether inflationary. The adjusted native staking reward has dropped below 2.5%, while stablecoin deposits are yielding around 4.5% in many DeFi protocols. Consequently, the inclusion of staking in spot ETFs may not significantly boost institutional demand.
The market is further concerned about the U.S. Securities and Exchange Commission potentially approving a spot Solana ETF in 2025. Such a move would intensify competition among investment products available to investors, particularly those currently limited to Ether and Bitcoin (BTC) ETFs.
To reach the $2,500 threshold and beyond, ETH needs to deliver compelling evidence of sustainable advantages beyond its initial market lead. Ultimately, the future trajectory of Ether is contingent on various elements, including upgrades to the Ethereum network, enhanced utilization, a decline in supply, and improved friction reduction for layer-2 interoperability, all of which will play a role in fostering growth within the ecosystem.
