Ethereum (ETH) has been a staple in the crypto space so far, but things don’t seem to be doing so well in 2024. Although other projects such as Bitcoin (BTC) and Solana (SOL) are recording strong gains, Ethereum is lagging behind. Why exactly? I’ll explain that here first hand. So if you want to know what’s behind Ethereum’s poor performance and how it happened, then you’ll find the answers in this article!
A look back at the numbers: Ethereum in comparison
The latest News and annual performance data clearly shows that Ethereum was unable to keep up with other altcoins in 2024. While Bitcoin gained over 140 percent and Solana even rose by an impressive 660 percent, Ethereum only recorded 66 percent. Compared to 22 other large projects, Ethereum only ranks 13th in the performance ranking and even ranked 18th in August. That was the first indication to me that 2024 will not be an easy year for Ethereum. One event that particularly stood out was August 5, 2024. On that day, the financial markets experienced a real flash crash. Bitcoin fell to $49,000 in a few hours and Ethereum crashed to $2,100. What exacerbated the situation was an unexpected interest rate hike by the Bank of Japan, which shook the global crypto market and also hit Ethereum hard.
Technical changes: The Layer 2 effect
But that’s just the tip of the iceberg. An important reason why Ethereum will not perform as well in 2024 is due to the changes within the network itself. Ethereum has made a major transition to so-called Layer 2 networks in recent years. This means that many transactions no longer take place directly on the Ethereum blockchain, but are processed on these secondary networks. This measure was necessary to solve the classic blockchain trilemma – i.e. the problems with scalability, security and decentralization. However, this results in fewer transactions being carried out on the Ethereum main network, which means less fee income and therefore fewer ETH tokens burned. This makes Ethereum more inflationary again, which is what it is ETH course presses. An example of Layer 2 competition is Coinbase’s “Base” network, which gained momentum in the summer of 2024. While Base is at the top in terms of user numbers, Ethereum has lost its importance in the Layer 2 ecosystem. This will make it harder for Ethereum to maintain its dominant role as more and more projects run on these networks.
Competition and inflation: Ethereum under pressure
Another point affecting Ethereum’s performance is increasing competition. Not only Solana or Tron are catching up, but new innovative projects in the areas of staking and decentralization are also putting Ethereum under pressure. Projects like EigenLayer offer better returns for stakers, and more and more capital is migrating from the Ethereum ecosystem to these new offerings. Additionally, Ethereum has a problem with inflation. After the big “merge” in September 2022, Ethereum was expected to become deflationary. Although more ETH was actually burned than created in the following months, Ethereum has been inflationary again since April 2024. The inflation rate is currently around 0.7 percent annually, and around 950,000 new ETH are being added, which puts further pressure on the price.
Conclusion: What Ethereum needs to do now
In summary, there are several reasons for Ethereum’s weak performance in 2024: The shift of transactions to Layer 2 networks, the associated lower revenue, increasing competitive pressure and rising inflation have damaged the price. But there is hope: Ethereum is already working on further upgrades such as “Pectra”, which is intended to introduce new functions and improve scalability. The coming decisions will determine whether Ethereum can correct its price upwards again. If you want to delve deeper into the world of Ethereum and other cryptocurrencies and always want to stay up to date, then be sure to check out my YouTube channel MissCrypto over! There are regular updates, analyzes and exciting insights into the crypto world. Just click on the subscribe button so you don’t miss any videos and are always well informed!