HashKey Jeffrey: The Weakness Mystery of Ethereum - The Multiple Dilemmas of Market, Technology, and Capital

Since 2022, Ethereum (ETH), as the "blue-chip asset" of the crypto market, has shown a significant gap between its price performance and market expectations. Although its ecosystem still accounts for over 55% of the locked value in the DeFi space, ETH's price has remained sluggish for a long time, with gains surpassed by emerging public chains like Solana, even facing doubts about "ecological prosperity but unfulfilled token value." This article will analyze the complex logic behind Ethereum's weakness from three dimensions: market sentiment, technological innovation bottlenecks, and capital trends.

1. Market Expectation Mismatch: Narrative Distraction and the "Reverse Effect" of ETFs

Ethereum was once the core driver of the DeFi and NFT waves. However, in recent years, as market hotspots have shifted towards AI, RWA (real-world assets), and Memecoins, its dominant position has been challenged. For instance, many AI projects and Memecoins in the Solana ecosystem have not chosen Ethereum as their main platform, leading to its gradual marginalization in emerging narratives.

At the same time, while Ethereum's Layer 2 (L2) scaling solutions have alleviated some performance bottlenecks of the mainnet, their feedback effect on the ecosystem has not been significant. The "involution" problem within the Rollup camp is particularly prominent, with developers overly focused on infrastructure improvements (such as data availability services) while neglecting innovation at the application layer. This diversion of resources has not only failed to expand the user base but has also caused trading volume and activity to flow to other competitive public chains.

Moreover, unlike the influx of funds seen with the launch of Bitcoin ETFs, the listing of ETH ETFs has led to capital outflows, partly due to selling pressure from Grayscale's old products. However, paradoxically, institutional interest in ETH is still warming up. Bernstein analysts predict that ETH may become the "institutional darling" by 2025 due to mechanisms like staking yields (28% of ETH is staked), smart contract locking (7.5%), and ETF absorption (3%). This mismatch between short-term and long-term expectations highlights the market's confusion about ETH's value capture ability.

2. The Double-Edged Sword of Technological Upgrades: From "Deflationary Narrative" to Ecological Imbalance

Technological upgrades have been the core narrative for Ethereum in recent years, but they have also brought many unexpected side effects. Although multiple upgrades (such as the Merge and EIP-1559) have successfully achieved supply deflation, the Dencun upgrade, which reduced data storage costs, has weakened the mainnet's revenue sources, indirectly affecting ETH's appreciation potential. Additionally, after the Cancun upgrade, the community's expectations for sharding chains shifted towards L2, but the "Stack strategy" of the L2 ecosystem overly relies on commercial narrative leverage, failing to substantially expand the user base.

Disagreements within the Ethereum Foundation regarding the development roadmap have exacerbated the technological dilemma. Base leader Jesse Pollak criticized the existing roadmap as "too conservative," calling for the 2027 upgrade plan to be moved up to 2026; developer Dankrad Feist questioned the strategy of "relying solely on L2 scaling," advocating for a large-scale upgrade of the mainnet. This oscillation in technological direction exposes Ethereum's lack of a "strong leader" like Satoshi Nakamoto. Although Vitalik has repeatedly emphasized that "price is not a priority goal," the Foundation's selling of ETH is still interpreted by the market as a lack of confidence.

3. Capital Games: The Tug of War Between Institutional Entry and Internal Selling Pressure

In terms of capital trends, Ethereum also faces a complex game.

Despite the weak price, institutional funds have quietly entered the market. A Coinbase report pointed out that ETH's limited supply, staking yields, and compliance make it the "preferred smart contract platform for institutional adoption." VanEck even predicts that the total amount of Bitcoin held by enterprises may exceed Satoshi's holdings by 2025, while ETH may regain capital favor due to trends like stablecoins, tokenization, and AI Agents.

At the same time, selling actions by the Ethereum Foundation and others have triggered a chain reaction. In December 2024, it was revealed that the Ethereum Foundation had cashed out multiple times at price peaks, with some individuals accurately "timing the top" by transferring over 100,000 ETH to exchanges, exacerbating market concerns about "insider pessimism." This capital movement hedges against institutional entry, leading ETH into a "value discovery" deadlock.

4. The Vitalik Paradox: "Fear of Bull Markets" and the Dilemma of Ecological Transformation

Vitalik Buterin once stated in a documentary that he "fears bull markets," revealing the core contradiction of Ethereum:

• Decentralization Challenge: While Ethereum's DeFi culture has established its early position, it has also led to an over-reliance on financial arbitrage within the ecosystem. Vitalik calls for "stepping out of the DeFi shadow" and shifting towards practical scenarios that integrate with Web2 (such as prediction markets and identity verification), but progress has been slow.
• Balancing Regulation and Innovation: The ambiguous stance of the U.S. SEC towards Ethereum (such as the prolonged lack of clarity regarding its security status) has dampened institutional confidence. Although the Trump administration's loose policies may bring opportunities, Ethereum still needs to find a new balance between compliance and decentralization.

5. Future Outlook: Pathways to Breakthrough and Potential Catalysts

Although Ethereum's price performance may still be constrained by internal selling pressure, market sentiment, and a narrative vacuum in the short term, its long-term future remains promising.

If Ethereum can embrace the modular trend, positioning itself as a "settlement layer + data availability layer," while incorporating high-performance execution layers from chains like Solana, it may be able to reconstruct the power dynamics. Additionally, accelerating the implementation of privacy technologies like ZK-SNARKs could open up new scenarios such as AI agents and decentralized storage.

Furthermore, in 2025, U.S. stablecoin legislation and a shift in SEC policies may open compliance pathways for ETH. If staking ETFs are approved or mechanisms for physical creation are introduced, institutional demand for ETH may see an explosion. At the same time, the entry of corporate funds (such as the Trump family's increased holdings in ETH) and sovereign wealth funds may alter the capital game dynamics.

The weakness of Ethereum is essentially the result of the resonance of market, technology, and capital. Its predicament does not stem from a single factor but is a necessary pain point during the ecological transformation period. In the short term, price fluctuations will still be subject to internal selling pressure and narrative vacuum; in the long term, if it can find new pivot points in modularization, compliance, and decentralization, ETH is still expected to return to a growth trajectory.

As one of HashKey Group's top ten predictions, "digital oil" Ethereum is expected to break through the $8,000 mark by 2025. With the accelerated rollout of ETH staking ETFs and a renewed recognition of Ethereum's value by institutions, the re-evaluation of ETH's value is just a matter of time.