Recently, I noticed some discussions in group chats about Ethereum. From a price perspective, SOL has significantly outperformed ETH in this bull run. Does this mean ETH is really failing?
I also shared a small temporary plan, mentioning that if Ethereum drops to around $2,150, I might consider buying a bit more spot ETH for a short-term trade. Although I’ve mentioned in previous articles that I rarely engage in swing trading, this statement was simply a way to express my stance—I am bullish on Ethereum.
Swing trading ideally involves buying at the lowest point and selling at the highest, but that’s challenging to achieve. Instead, it’s about entering at your expected price level and exiting when your target is met. While aiming for profits, it’s crucial to consider potential losses and set stop-loss and take-profit levels based on your risk tolerance.
Key Events for Ethereum in 2024
By all expectations, this bull run should have been a glorious year for Ethereum. Several notable events occurred in 2024:
- The Dencun upgrade was completed and implemented in March.
- The SEC concluded its investigation into Ethereum 2.0 in June (though staking regulations remain unclear).
- Spot Ethereum ETFs were officially approved in July.
Additionally, on-chain data shows that Ethereum’s network activity has nearly quadrupled since the beginning of the year. However, despite these developments, Ethereum’s price performance has been relatively lackluster.
From January to the time of writing, ETH has only gained 14%, while BTC and SOL have surged 45% and 59%, respectively. The ETH/BTC ratio, currently around 0.043, is near its lowest point in the past year. Similarly, the SOL/ETH ratio hit a new all-time high of 0.064 on August 8.
Other factors contributing to Ethereum’s recent price pressure include:
- Large sell-offs by entities like Jump Trading.
- Dormant wallets (possibly linked to the PlusToken scam) transferring nearly 800,000 ETH after three years of inactivity.
From a price performance perspective, ETH has indeed disappointed many this year.
Is Ethereum Really Failing?
From a long-term viewpoint, as discussed in previous articles, we remain optimistic about Ethereum’s future. However, short-term challenges exist, one of which is the declining demand for ETH.
Compared to last year, transaction costs on Layer 2 (L2) networks like Arbitrum have become significantly cheaper. While this benefits users, it may negatively impact ETH’s price due to fragmented liquidity. When a network offers fast and cheap transactions but lacks new demand and innovation, its gas token may lose upward momentum.
This reduced demand has also shifted ETH from a deflationary to an inflationary state. To use an analogy: if ETH were oil, and everyone previously needed it to fuel their cars (execute transactions), high demand kept prices elevated. But with the rise of L2s (like electric vehicles), cheaper alternatives have reduced reliance on ETH (oil).
That said, some still prefer Ethereum for its stability and security. Nevertheless, if demand for a network’s gas token continues to decline, its price will likely suffer. This dynamic has created opportunities for other networks, such as Solana, which capitalized on the MemeCoin trend to boost demand for SOL. In this environment, ETH faces liquidity fragmentation due to competition from L2s and other L1s.
In the long run, does the blockchain space need hundreds of networks? Or will a few dominant ones suffice? In my view, one Ethereum (along with a few top L2s and L1s) should be sufficient for application-layer development, similar to how Windows and Mac dominate the operating system market.
Short-Term vs. Long-Term Outlook
If your goal is short-term gains, ETH’s performance has indeed lagged behind SOL’s. Solana, primarily driven by MemeCoin hype, may continue to benefit from emerging trends like AI, GameFi, and DePin. However, instead of choosing between ETH and SOL, consider diversifying into both.
For long-term investors, Ethereum remains a stronger bet due to its robust ecosystem. Currently, over 28% of ETH’s supply is staked (33,650,436 ETH at the time of writing). Beyond macroeconomic factors, key drivers for ETH’s price will be:
- Inflows/outflows from spot ETFs.
- Increased liquidity boosting Ethereum’s DeFi and L2 ecosystems, thereby raising demand for ETH.
Thus, the current dip could be a buying opportunity for ETH. That said, price volatility is inherent to cryptocurrencies. If you cannot tolerate fluctuations, avoid trading altogether. As emphasized in previous articles: only participate in games you’re prepared to play.
Frequently Asked Questions
Why has ETH underperformed SOL in 2024?
ETH’s price growth has been muted due to reduced demand for its gas token, competition from L2s and other L1s, and market dynamics like large sell-offs. SOL, meanwhile, benefited from MemeCoin hype and lower transaction costs.
Is Ethereum still a good long-term investment?
Yes. Ethereum’s ecosystem remains the most developed in crypto, with strong adoption in DeFi, NFTs, and institutional applications. The approval of spot ETFs and increasing staking activity also support its long-term value.
What are the risks of investing in Ethereum?
Key risks include regulatory uncertainty (especially around staking), technological challenges from competing networks, and macroeconomic factors affecting overall crypto liquidity.
How does Layer 2 adoption affect ETH’s price?
L2s reduce transaction costs on Ethereum but may dilute demand for ETH as a gas token. For ETH’s price to thrive, overall network demand must outpace the reduction in gas fees.
Should I buy ETH or SOL?
Diversification is often wise. SOL offers short-term growth potential from emerging trends, while ETH provides long-term stability and ecosystem strength. Explore more strategies to balance your portfolio based on your goals.
What will drive ETH’s price in the future?
ETF inflows, increased staking, ecosystem growth, and broader crypto adoption are critical factors. Monitoring on-chain data and regulatory developments can help identify opportunities.
Remember, always conduct your own research and invest only what you can afford to lose. The crypto market is highly volatile, and past performance is not indicative of future results.