Surprise ETH price drop below $2.5K raises questions about Ethereum fundamentals

Ether (ETH) prices declined by 9.6% from Oct. 20 to Oct. 23, following a strong rejection at the $2,700 level. This move erased the gains of the previous 10 days, and as Ether now stabilizes near $2,500, its 30-day performance remains negative, down by 6%.

The chance of ETH reclaiming the $2,800 support is diminishing and onchain data suggests that high transaction fees are pushing activity away from the Ethereum network, ultimately reducing demand for native staking. 

Part of Ether’s recent decline can be attributed to the 5% drop in total cryptocurrency market capitalization over the two days ending on Oct. 23. However, the broader index is still up 1.9% over the past 30 days, indicating that ETH has underperformed the market by 8% during this period. This underperformance helps explain the lack of optimism among Ether investors.

Ethereum network congestion and the lack of a clear solution

While Ethereum’s average transaction fees of $4 over the past two weeks may suggest robust onchain activity, they also strengthen the appeal of competing blockchains offering lower-cost services. This issue is less significant for large investors or whales involved in arbitrage, but it severely limits some smaller use cases.

According to DefiLlama, the Solana network recorded $13.4 billion in volume over the past seven days, 67% higher than Ethereum’s activity during the same period. This gap has widened considerably, as the two networks had comparable volumes before October.

More importantly, decentralized exchange (DEX) volumes on Ethereum dropped by 13% in the seven days ending on Oct. 23, despite the broader market gaining momentum. Both Uniswap and Curve Finance saw activity on the Ethereum network decline by 18% during this period. In contrast, Solana’s Raydium posted a 42% volume increase, while Lifinity’s activity surged by 77% compared to the previous week.

In terms of total value locked (TVL), Ethereum’s performance has disappointed investors, with TVL reaching 18.2 million ETH, a 5% decline compared to one month ago.

A reduced number of deposits is generally viewed as a negative for ETH’s supply and demand dynamics. This is particularly relevant when validators are withdrawing Ether from staking, which is exactly what has been happening. According to Staking Rewards data, the Ethereum network saw a net decrease of 191,000 ETH staked over the 30 days ending on Oct. 23, valued at $492 million at current prices.

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From an onchain perspective, Ethereum is losing ground to competing networks. Solana’s TVL increased by 12% in SOL (SOL) terms, while deposits on the BNB Chain (BNB) remained stable over the past 30 days. Another factor contributing to investors’ disappointment with Ether’s price outlook is the uncertainty surrounding the upcoming Prague-Electra upgrade.

Initially expected in the first quarter of 2025, the Prague-Electra upgrade focuses on scalability improvements, including the introduction of Verkle trees to reduce node storage and EIP-7251 to enhance validator efficiency. However, concerns persist about potential delays and whether these changes will sufficiently address the network’s congestion issues, which remain a key factor in Ether’s long-term growth prospects.