Ethereum price drop against Bitcoin has made some investors and analysts nervous. Since December 2021, Ethereum has crashed by around 77% in price compared to Bitcoin. The fall has been pronounced, and it’s stopped short of recovering to its all-time high of $4,760 set in November 2021. So, in response, we’re in the middle of looking much deeper at what’s behind this poor performance.
Layer 2 Solutions and Mainnet Activity
One of the main arguments given for Ethereum’s pain has been the emergence of its own Layer 2 solutions. These layer 2 solutions, like Arbitrum, Optimism, and zkSync, are said to be cannibalizing mainnet activity.
As these L2 solutions continue to increase in popularity, they pull investment away from Ethereum itself, thereby spreading investor focus even thinner. This change in tune makes a meaningful difference to the overall demand and price appreciation of Ethereum.
Roadmap Complexity and Regulatory Concerns
Ethereum’s highly complicated down the road also confusing communication thus far has contributed to the investor confusion. With major updates like The Merge and Shanghai, investors have been confounded. That confusion is sowing uncertainty and hesitancy in what should be a booming market.
Furthermore, Ethereum faces constant uncertainty regarding its regulatory status. Increased regulatory scrutiny on the potential classification of Ethereum as a security. This increases uncertainty and risk, which scares off possible investors.
Post-Upgrade Withdrawals and Market Dynamics
The post-upgrade withdrawals of staked Ethereum have issued a continuous form of sell-side pressure that stifles growth and momentum in Ethereum as compared to Bitcoin. This non-stop pressure to sell has created a formidable headwind preventing Ethereum from building or maintaining any real upward momentum.
Ethereum seems to be stuck in the middle, with no obvious or compelling investment story on either side. Despite the increase, the price is still lagging significantly behind Bitcoin. At the same time, Ethereum has a hard time recovering its lost market share and is outpaced by Bitcoin on almost all timeframes. Its mid to low-cap altcoin counterparts have already adeptly outpaced it.
