HashKey Jeffrey: The Mystery of Ethereum Weakness

Since 2022, Ethereum (ETH), as a "blue chip asset" in the crypto market, has a significant gap with market expectations. Although its ecosystem still accounts for more than 55% of the locked position value in the DeFi field, the price of ETH has been sluggish for a long time, and the increase has been surpassed by emerging public chains such as Solana, and even faces the question of "the ecological prosperity but the value of the token has not been fulfilled." This article will analyze the complex logic behind Ethereum's weakness from three dimensions: market sentiment, technological innovation bottlenecks, and capital trends.

1. Miscope of market expectations: the " reverse effect "

between narrative out-of-focus and ETFs

Ethereum was once the core enabler of the DeFi and NFT wave. However, after the market hotspots turned to AI, RWA (real world assets) and Memecoin in recent years, their dominance has been challenged. For example, many AI projects and Memecoin in the Solana ecosystem did not choose Ethereum as the main platform, resulting in its gradual marginalization in emerging narratives.

At the same time, although Ethereum's Layer 2 (L2) expansion solution has alleviated the bottleneck of mainnet performance to a certain extent, its feedback on the ecosystem is not significant. The "involuation" problem in the Rollup camp is particularly prominent, with developers over-focusing on infrastructure improvements (such as data availability services) and neglecting innovation at the application layer. This resource diversion not only did not expand the user base, but instead caused transaction volume and activity to flow to other competitive public chains.

In addition, unlike the influx of funds when Bitcoin ETF was launched, capital outflows occurred after ETH ETF went public, partly due to the selling pressure of old Grayscale products. Paradoxically, however, the long-term interest of institutions in ETH is still heating up. Bernstein analysts predict that ETH may become the "institutional darling" in 2025 due to mechanisms such as pledge income (28% ETH is pledged), smart contract locking (7.5%) and ETF absorption (3%). This misalignment between short-term and long- term expectations highlights the market's confusion about ETH value capture capabilities.

2. The double-edged sword of technological upgrading: from "

deflationary narrative " to ecological imbalance

Technology upgrades are the core narrative of Ethereum in recent years, but it also brings many unexpected side effects. Although Ethereum's multiple upgrades (such as mergers and EIP-1559) have successfully achieved supply deflation, the Dencun upgrade has reduced the cost of data storage, which has weakened the main network revenue source and indirectly affected the ETH value-added potential. In addition, after Cancun's upgrade, the community's expectations for shard chains have turned to L2, but the "Stack strategy" of the L2 ecosystem relies too much on business narrative leverage and failed to substantially expand the user base.

Differences within the Ethereum Foundation on the development roadmap have exacerbated the technological dilemma. Base head Jesse Pollak criticized the existing route for being "too conservative" and called for advancement of the 2027 upgrade plan to 2026; developer Dankrad Feist questioned the strategy of "only relying on L2 expansion" and advocated large-scale upgrade of the main network. This swing of technology routes has exposed the lack of "strong leaders" similar to Satoshi Nakamoto. Although Vitalik has repeatedly emphasized "price non-priority target", the foundation's selling of ETH is still interpreted by the market as lack of confidence.

**3. Capital Game: The Struggle between Institutional Entry and Internal

Selling Pressure**

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

Despite the weak prices, institutional funds are quietly entering the market. The Coinbase report notes that ETH's limited supply, pledge proceeds and compliance make it "the preferred smart contract platform for institutions to adopt." VanEck even predicts that the total amount of Bitcoin held by enterprises may exceed Satoshi Nakamoto's position in 2025, and ETH may regain capital favor due to trends such as stablecoins, tokenization and AI Agent.

At the same time, selling behaviors such as the Ethereum Foundation have also triggered a chain reaction. In December 2024, the Ethereum Foundation was exposed to cash out many times at the price high, and some people accurately "escape the top" and transferred more than 100,000 ETH on the exchange, aggravating the market's concerns about "insiders' bearishness." This capital trend hedges with institutional entry, causing ETH to fall into a deadlock of "value discovery".

4. V God Paradox: " Fear of Bull Market " **and

the Dilemma of Ecological Transformation**

Vitalik Buterin once said in the documentary that he was "fearing a bull market", revealing the core contradictions of Ethereum:

• · Definition challenge : Although Ethereum's DeFi culture has achieved its early status, it also leads to the ecology's excessive dependence on financial arbitrage. Vitalik called for "get out of the DeFi haze" and turn to practical scenarios that integrate with Web2 (such as forecasting markets, identity verification), but progress is slow.

• · Balance between regulation and innovation : The US SEC's ambiguous attitude towards Ethereum (such as its securities attributes not yet clarified) has suppressed institutional confidence. Although the Trump administration's loose policy easing may bring a turning point, Ethereum still needs to find a new balance between compliance and decentralization.

5. Future Outlook: The Road to Breakthrough and Potential Catalysts

Although Ethereum's price performance may still be restricted by internal selling pressure, market sentiment and narrative vacuum in the short term, its future is still worth looking forward to in the long run.

If Ethereum can embrace the trend of modularity, it positiones itself as the "settlement layer + data availability layer", and at the same time absorbs the high-performance execution layer of chains such as Solana, or can reconstruct the voice system. In addition, accelerating the implementation of privacy technologies such as ZK-SNARKs may open up new scenarios such as AI proxy and decentralized storage.

In addition, in 2025, the shift in US stablecoin legislation and SEC policy may open up compliance channels for ETH. If the pledged ETF is approved or the physical creation mechanism is introduced, the institutional demand of ETH may usher in an explosion. At the same time, the entry of corporate funds (such as the Trump family’s treasury increases ETH) and sovereign funds may reverse the capital game pattern.

Ethereum's weakness is essentially the result of market, technology and capital resonance. The difficulties do not stem from a single factor, but the pain that must be experienced 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 new fulcrums can be found in modularization, compliance and definitiveization, ETH is still expected to return to the growth track.

As one of HashKey Group's top ten forecasts, "digital oil" Ethereum will be expected to break the $8,000 mark in 2025. With the accelerated implementation of ETH staking ETFs and the institutions’ re-understanding of the value of Ethereum, it will be a matter of time before ETH revaluation will be.