Ethereum Struggles with Layer-2 Impact
Standard Chartered has significantly lowered its 2025 Ethereum (ETH) price target from $10,000 to $4,000, citing a fundamental shift in the network’s value capture. The bank’s latest research report, titled “Ethereum — Midlife Crisis,” warns that Layer-2 (L2) solutions are siphoning value away from the main Ethereum blockchain, reducing its economic viability.
According to the report, Base, one of the leading L2 solutions, has removed approximately $50 billion from Ethereum’s market capitalization. While L2 solutions were originally designed to enhance scalability, they now divert transaction fees and economic activity away from Ethereum’s core protocol, significantly weakening its ability to sustain long-term growth.
The report highlights that the recent Dencun upgrade (March 2024) has accelerated this trend by making L2 solutions even more efficient. This shift has led to increased transaction throughput on L2 networks at the cost of the Ethereum mainnet, ultimately lowering Ethereum’s ability to retain value.
Geoffrey Kendrick, Standard Chartered’s Head of Digital Assets Research, suggests that Ethereum should explore ways to retain more economic activity on its base layer. One potential solution is imposing a “super tax” on L2s, similar to how some governments regulate foreign-owned mining operations to ensure a share of local profits remains in the host economy.
Bitcoin Seeks Deep-Pocketed Investors Amid Sell Pressure
While Ethereum battles structural issues, Bitcoin (BTC) faces its own challenges. The cryptocurrency has fallen 29.7% from its all-time high of $109,590 (Jan 2025), now trading below $77,000. Analysts warn that institutional demand is weakening, leading to increased sell pressure from short-term holders.
The latest Bitfinex Alpha report suggests that exchange-traded fund (ETF) outflows have significantly contributed to Bitcoin’s decline, with $921.4 million withdrawn over four of five trading days last week. Historically, Bitcoin has rebounded after 30% corrections, but the lack of strong institutional buying raises concerns about further downside.
Short-term holders (STHs), particularly those who acquired BTC within the last 180 days, have been selling at a loss. The Short-Term Holder Spent Output Profit Ratio (STH-SOPR) has remained below 1.0 since Bitcoin dipped below $95,000, indicating that most recent buyers are exiting the market at a loss rather than holding.
A crucial factor for Bitcoin’s recovery will be the return of deep-pocketed investors. Institutional capital, which played a significant role in sustaining past market cycles, now appears hesitant. Without renewed interest from major financial players, Bitcoin’s price could continue to consolidate or face further declines.
What’s Next for the Crypto Market?
Both Ethereum and Bitcoin face critical inflection points. Ethereum’s long-term viability may depend on its ability to recapture economic value lost to L2 solutions, while Bitcoin requires institutional support to stabilize and resume its upward trajectory.
Will Ethereum adapt to the Layer-2 challenge, or will its value continue to erode? Can Bitcoin attract enough institutional demand to reverse its current downturn? Share your thoughts in the comments below. 🚀
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