We will review the main reasons contributing to Ethereum's poor performance in the market, along with examples of some projects that failed and caused the rug to be pulled out.
1. Excessive Rise in Ethereum's Value
Ethereum experienced a strong rise in its market value in previous years, surpassing a market cap of $210 billion at one point. This rise was driven by widespread expectations that projects relying on Ethereum would thrive significantly, and it is believed that these projects will contribute to increasing the value of the currency in the long term. However, when Ethereum's value rose excessively, this increase was not supported by a real economy or actual growth of projects relying on Ethereum, resulting in a price bubble.
2. Failure of Many Projects Built on Ethereum
One of the biggest reasons contributing to Ethereum's poor performance is the failure of many projects that relied on it. These projects, which began attracting investors based on high hopes for Ethereum's value, may not have achieved the goals they were promoting.
Example 1: Decentralized Finance (DeFi) Projects
One clear example of the failure of Ethereum projects is the phenomenon of decentralized finance (DeFi). Initially, many believed that projects like Aave and Compound would change the way currencies are traded and loans are provided. However, we noticed that some of these projects could not handle the technical or security risks that emerged later, causing them to lose user trust. For example, there were hacks and massive withdrawals of funds from some protocols that relied on the Ethereum network, leading to a decline in trust in these projects.
Source: A report from Messari on the failure of DeFi projects on Ethereum and CoinDesk regarding the security impact of these hacks.
Example 2: Projects Based on Non-Fungible Tokens (NFTs)
Non-Fungible Token (NFT) projects were also one of the reasons that drove Ethereum's value to rise excessively. Initially, the NFT market attracted a lot of attention through digital artworks and significant value for non-fungible tokens, but over time, prices began to decline significantly, affecting the entire market. As a result, many projects that relied on these tokens began to decline in value, pulling the rug out from under Ethereum.
Source: A report from NFT Stats and The Block on the impact of declining NFT prices on Ethereum.
3. Manipulation by Teams and Investors
One of the factors that contributed to the deterioration of trust in Ethereum is the manipulation that may occur from some teams or large investors in these projects. With rising prices, some see an opportunity to make quick profits through market manipulation or making investment decisions based on unethical practices. This type of manipulation can affect small investors who face significant losses due to violent market fluctuations.
For example, some major investors in projects relying on Ethereum may execute massive sales or purchase large amounts of the currency in short periods, leading to sudden price changes and creating a panic among small investors.
Source: A study from CryptoCompare on manipulation in digital markets and its impact on Ethereum.
4. Return of Trust in Bitcoin and Some Investors Abandoning Ethereum
Additionally, we have seen at various times a return of some investors to Bitcoin as a 'safe haven' in the cryptocurrency market. Although Ethereum has provided many innovative solutions, Bitcoin has maintained its reputation as a leading currency and a reliable source of value in the market. With increasing investor fears regarding inflation and manipulation in the Ethereum market, many have returned to investing in Bitcoin, negatively impacting Ethereum's price.
Source: A study from Glassnode and Bloomberg on the return of trust in Bitcoin and its impact on Ethereum.
5. Competition from Other Blockchain Networks
Recently, other blockchain networks like Polkadot and Binance Smart Chain have begun to gain popularity, thanks to the high speed and cheap transactions these networks offer compared to Ethereum. These new networks represent a direct threat to Ethereum as they provide similar solutions but with better features in some cases, prompting some projects to abandon Ethereum and move to other platforms.
Source: An article from TechCrunch and CoinTelegraph about the increasing competition between new blockchain networks and Ethereum.
Conclusion
In conclusion, although Ethereum remains one of the most important and influential digital assets in the cryptocurrency market, it faces significant challenges that make its price volatile. The failures of many projects built on it, manipulation by some teams, competition from other blockchain networks, and the return to Bitcoin are all factors affecting Ethereum's performance. Investors should be cautious and approach this currency with a long-term perspective and greater realism, considering that the cryptocurrency market in general still exhibits high volatility and unstable conditions.
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