One of the main cryptocurrencies, second only to Bitcoin, is Ethereum. Yet it is declining in value and is failing to attract the market. In this article, we discuss why Ethereum’s price is falling and if it can turn around.
Ethereum once challenged Bitcoin for the spot as the most prominent cryptocurrency. Yet as many investors prepare for a Bitcoin bull run, Ethereum has fallen behind with prices dropping by the day. So is Ethereum ever going to turn around, and what has contributed to its current state?
Ethereum ETFs
One of the largest factors compounding the woes of Ethereum has been the startling lack of appetite for Ethereum ETFs. These exchange-traded funds do not allow buyers to own Ethereum. Instead, the currency is bought by a company that has its price pinned to it. People then buy into that company. They are attractive to outside investors as they are a safer, more secure form of investing in cryptocurrency.
In January, Bitcoin ETFs became available, providing a safer and more stable option for those wanting to invest in Bitcoin. This was taken favorably, with their only outage since recorded last month.
This has not been the case for Ethereum ETFs and their viability has been called into question, particularly when compared to the success of Bitcoin ETFs. These Ethereum ETFs have not gained anywhere near the volumes, with massive differences in trading amounts between the two. In the first 29 days of trading, there were $477 million worth of outflows. In the same period, Bitcoin ETFs attracted $5.1 billion.
However, a few factors suggest astute traders may have been able to see this coming, as the two have some marked differences. The biggest is that they are not available for margin trading. This is where a trader uses leverage and borrows money from a broker to buy a large amount of the asset. This means it does not have the lure to investors and traders that Bitcoin ETFs have done.
Lack of Support From Its Creators
Another major factor is the lack of support shown to Ethereum by those who should be championing it. This blame can lie firmly at the door of Vitalik Buterin, a co-founder of Ethereum. Buterin has methodically sold off his currency in chunks. In August alone, 5,000 ETH was sold which he said was to raise money for charity.
To put it in perspective, in 2021 he admitted that he had 700,000 ETH in a comment posted on Reddit. This came from activities when the network was in a pre-mine event. He now has just 44% of that asset left. As well as the amount in August, he also transferred 3,000 to an account on August 9th.
This is against a backdrop of its creators being criticized for not promoting it and the fact that it was never created as a way to store value, to begin with. He pointed out on X that he has held all his money since 2018 and is now using it for other projects. He also added that 90% of his portfolio remains in Ethereum.
Another factor compounding its lack of interest has been its decline in network fees. Much of its activity has moved to other chains like the Layer 2 Base Network. As transactions can be done at a much lower cost, the Ethereum network has had less activity.
Ethereum has not had it so bad since 2022. In June of that year, 44% was wiped off the value in a massive crypto drop due to the collapse of the Terra blockchain.
Added to this is the fact that Bitcoin remains an integral part of current events. Talk has been made of presidential candidates creating Bitcoin reserves for the US. All of this creates hype and demand around the product, pulling it away from Ethereum.
Why Is Ethereum Still Relevant?
Ethereum should still not be written off. It is still the second biggest cryptocurrency. In many ways, it has more applications than Bitcoin and gives you more reason to diversify. Essentially, you are buying a building block, a smart contract on the blockchain network. This lets you create everything from games to the land in the metaverse. As these areas become more entwined in the daily lives of the population and more accepted, Ethereum will become a valuable tool.
The number of researchers working on Ethereum has increased exponentially since 2019. Then, there were about 25 researchers working on it. Now, there are around 550. This shows the ecosystem is continually attracting the best talent who want to build and grow it. In addition to this, around 2700 developers are also working on it.
It is also the currency of decentralized finance, which makes it extremely attractive to many people who do not want to use traditional financial institutions, with fees and regulations that can be preventative. It may be some time before Ethereum turns around, but it will at some point. The biggest decision is to decide if you will buy now, or wait and see if the price drops any further.