What happened to Ethereum in 2024? Is ETH really not viable anymore?

A couple of days ago, I saw some partners in the group discussing issues related to ETH. From a price perspective, SOL's performance in this bull market has clearly outperformed ETH. Is ETH really not doing well?

I also replied with a temporary little plan of mine, saying: if Ethereum drops to around 2150, then I might consider buying a little bit of spot, trying to make a small swing trade.

Although I mentioned in previous articles that I rarely engage in swing trading, the reason I said the above is merely to express my attitude from a different angle; I am optimistic about Ethereum.

As for swing trading, the ideal scenario is definitely to buy at the lowest point and sell at the highest point, but this is very difficult to achieve. Therefore, as long as you reach your expected position to buy, and then sell after achieving your corresponding target, that’s enough. While hoping to make money from swing trading, one should also consider the possibility of losses; take-profit and stop-loss positions need to be customized according to one’s risk preference.

1. What has happened to Ethereum this year?

According to expectations, this year's bull market should have allowed Ethereum to shine. In fact, several noteworthy events have occurred with Ethereum this year, such as the completion and implementation of the Cancun upgrade in March, the SEC ending its investigation into Ethereum 2.0 in June (though staking remains unclear), and the official approval of Ethereum spot ETFs in July.

In addition, we can also see from on-chain data that Ethereum's on-chain activity has almost quadrupled since the beginning of this year. As shown in the figure below.

However, there is always a feeling that while Ethereum's performance in various aspects this year seems acceptable, its price performance is relatively disappointing.

From the beginning of this year to now, if we compare the price at the beginning of the year with the price at the time of writing this article, ETH's increase is only 14%, while BTC has increased by 45% and SOL by 59%.

If we look at the ETH/BTC ratio, this comparison seems even more intuitive. Currently, this ratio is around 0.043, which is almost the lowest point in the past year. As shown in the figure below.

If we continue to look at the SOL/ETH ratio, it seems to be similar; in fact, just yesterday (August 8), this value even reached a historical high of 0.064. As shown in the figure below.

Of course, alongside the recent price issues with Ethereum, there are also other factors at play. In addition to the impact of the macro market environment, there have been large sell-offs from Jump Trading and a batch of wallets that have been dormant for over three years are now transferring large amounts of ETH (nearly 800,000 ETH, reportedly from wallets left over from PlusToken)……

In summary, from the perspective of price performance, ETH's performance this year has indeed not satisfied everyone.

2. So is ETH really not doing well?

From a long-term perspective, in the series of past articles discussing Ethereum, our view has always been optimistic about Ethereum's long-term development.

From a short-term perspective, Ethereum may indeed face some issues. Today, we continue to discuss a possible point: the demand for ETH's correlation is decreasing.

Compared to last year, the transaction costs on L2 networks like Arbitrum have become very low this year. As shown in the figure below.

From a certain perspective, this seems to have had some impact on ETH's price (liquidity fragmentation). If a network is fast and has low fees, but there is insufficient new demand and innovation, then the Gas token seems to lose some reasons for appreciation.

Moreover, due to the decreasing demand for ETH, the originally deflationary ETH has now turned back into a positive inflation rate. As shown in the figure below.

To make a simple analogy, if we compare ETH to oil, because everyone used to need to refuel their cars, and new cars (new concepts) were continuously launched, the price of oil would be relatively high. However, with the large-scale adoption of L2, which can be likened to cheaper electric vehicles, if everyone is now driving electric cars, the price of oil may be affected.

Of course, it is also possible that some people still prefer gasoline cars because they believe gasoline cars are more stable and safer; we will not debate this here. From the perspective of demand, if the correlation demand for a network's Gas token continues to decline, it will inevitably lead to a decrease in its price.

In this process, it has also provided other networks with new short-term speculative opportunities. For example, the Solana network, which claims to be faster and cheaper, has turned the SOL token into a new demand due to the hype around MemeCoin. Under the diversion of ETH to L2 and SOL, liquidity fragmentation has occurred to some extent.

In summary, if a network reduces its fees by ten times, then correspondingly, the demand also needs to increase tenfold to make up for this balance. Once this demand flows to other places (like Solana, etc.), the corresponding network token price may face some downward pressure.

From a long-term perspective, does this field really need hundreds of different networks? Or will one or a few be enough in the future? This needs time to decide. At least from my perspective, in terms of building applications, having one Ethereum is basically enough, or a few more can be acceptable (like 2-3 leading L2s, 1-2 leading L1s), just like how Windows and Mac occupy most of the market share; we don't need hundreds of operating systems at the same time.

From this perspective, if you have short-term goals, then ETH's performance is indeed not as good as SOL. Moreover, although Solana is currently mainly relying on MemeCoin speculation, upcoming hot sectors like AI, GameFi, and DePin may also be able to continue the speculative momentum. But only children make choices; adults only look at profits. If you are torn between buying ETH or SOL, then just buy a bit of both.

If you are looking at the issue from a longer-term perspective, I would recommend focusing on ETH. The overall ecological development of Ethereum is more stable. Moreover, currently, over 28% of ETH tokens are staked (as of the time of writing, there are 33,650,436 ETH staked). Moving forward, aside from the macro market environment, we still need to pay close attention to the inflow/outflow data of ETF funds, which will become one of the most important factors affecting ETH's price direction. Once more funds (liquidity) start to flow back into Ethereum, it will inevitably further promote the ecological development on Ethereum (DeFi ecology, L2-related ecology, etc.), thereby further enhancing the correlation demand for ETH tokens. Therefore, now is still one of the opportunities to buy ETH.

Of course, whether buying ETH, SOL, or any other cryptocurrency, price trends are certainly volatile. It does not mean that you can make money immediately after buying. If you cannot accept any price fluctuations, it is advisable not to participate in any trading. As mentioned in the previous article (August 7), "We should not easily play games we cannot afford."