Ethereum (ETH) is facing significant challenges as Standard Chartered (StanChart) has downgraded its 2025 price target for the cryptocurrency from $10,000 to $4,000. This dramatic 60% reduction has raised concerns about the future of the second-largest cryptocurrency by market capitalization, particularly as Ethereum’s performance continues to lag behind other digital assets.

The Impact of Coinbase’s Base Layer 2

The primary reason behind this sharp revision in Ethereum’s price forecast is the increasing dominance of Coinbase’s Base Layer 2 (L2). Geoffrey Kendrick, StanChart’s Head of Digital Assets Research, pointed out that Base has extracted approximately $50 billion in market cap from Ethereum. Base, a Layer 2 network built on top of Ethereum, has been growing rapidly, and according to Kendrick, it now controls a substantial portion of Ethereum’s transaction fees, bypassing the main Ethereum network.

Layer 2 solutions like Base are designed to offer scalability and faster transaction speeds by handling transactions off-chain before settling on the Ethereum mainnet. While these solutions can improve efficiency, they also divert traffic and transaction fees away from Ethereum’s base layer, which directly impacts the network’s market cap. Kendrick’s analysis suggests that unless Ethereum addresses this issue, its market dominance and value could continue to decline.

Kendrick proposed a solution in the form of a “super tax” on Layer 2 platforms, particularly Base, to rein in the profits flowing outside Ethereum’s mainnet. If Ethereum fails to take action, the ETH/BTC ratio, which compares Ethereum’s price to Bitcoin, could continue to fall, further undermining the value of ETH.

Ethereum’s Recent Struggles

The report from StanChart also pointed to Ethereum’s recent upgrades, including “The Merge” and “Dencun,” as contributing factors to its weakened market position. While these upgrades were designed to improve Ethereum’s scalability and long-term sustainability, Kendrick believes they have been “value destructive” in the short term. Ethereum has struggled to attract new investors and maintain momentum despite these changes.

One of the most telling signs of Ethereum’s underperformance is its ETH/BTC ratio, which recently hit a five-year low of 0.22. This marks a significant drop of 73% from the highs seen in 2022. Ethereum’s poor performance relative to Bitcoin has led to growing concerns among investors and analysts alike.

Comparing Ethereum’s Performance to Other Assets

When compared to other major assets, Ethereum’s performance has been lackluster. Quinn Thompson, Founder of Lekker Capital, a macro-focused crypto venture firm, noted that Ethereum has underperformed U.S. equities since 2018, including the S&P 500 Index. Although Ethereum saw a significant rally earlier in the year, jumping 167% from $1,600 to $4,000 between late 2023 and early 2024, it has since lost ground. At the time of writing, Ethereum was trading at around $1,900, and analysts fear it could continue to dip lower, potentially erasing the gains made in the previous cycle.

Greg Magadini from Amberdata also pointed to Ethereum as a prime candidate for short selling. He highlighted that the ongoing sell-off in altcoins and the decline in the ETH/BTC ratio could drive Ethereum’s price even lower. Magadini’s analysis suggests that Ethereum’s price could drop to as low as $1,600 or even $1,200 if the downtrend continues.

What Lies Ahead for Ethereum?

The future of Ethereum remains uncertain. While Ethereum has made strides in upgrading its network and transitioning to a more scalable and energy-efficient model, the rise of Layer 2 solutions like Base has created new challenges. With Ethereum’s market cap shrinking and its performance lagging behind other cryptocurrencies, investors are becoming increasingly cautious.

Whether Ethereum can regain its footing and achieve long-term growth depends on how effectively it can adapt to the evolving blockchain ecosystem. Addressing the dominance of Layer 2 solutions, improving network efficiency, and restoring investor confidence will be key to reversing Ethereum’s current downward trajectory. However, if these issues remain unaddressed, Ethereum could face continued price pressure in the months and years ahead.