We'll explore the main reasons contributing to Ethereum's weakening market performance, along with examples of some projects that failed and took its spotlight.
1. Excessive Valuation of Ethereum
In previous years, Ethereum experienced a significant increase in its market value, surpassing $210 billion at one point. This increase was driven by widespread expectations that Ethereum-based projects would thrive, thus elevating the currency's long-term value. However, when Ethereum's value became excessively inflated, it was not supported by real economic growth or the effective development of such projects, leading to a price bubble.
2. Failure of Many Ethereum-Based Projects
Another major reason for Ethereum's poor performance is the failure of numerous projects that relied on its network. These projects, which initially attracted investors with high expectations, failed to deliver on their promises.
Example 1: Decentralized Finance (DeFi) Projects
A clear example of Ethereum project failure is the decentralized finance (DeFi) phenomenon. Initially, many believed that projects like Aave and Compound would change the way trading and lending were done. However, several of these projects failed to manage the technical or security risks that later emerged, leading to a loss of user trust. Hacks and massive withdrawals occurred in Ethereum-based protocols, severely impacting their reputation.
Source: Messari reports on Ethereum DeFi project failures and CoinDesk reports on the impact of security issues.
Example 2: Non-Fungible Token (NFT) Projects
NFT projects also contributed to Ethereum's overvaluation. Initially, the NFT market attracted enormous attention through digital artwork and high token values. However, over time, prices began to drop dramatically, impacting the broader market. As a result, many NFT-dependent projects lost value, further weakening Ethereum.
Source: NFT Stats and The Block reports on the NFT price drop and its impact on Ethereum.
3. Manipulation by Teams and Investors
Confidence in Ethereum has also been shaken by manipulation by certain teams or large investors. As prices rose, some took advantage of the opportunity to make quick profits through manipulation or unethical investment practices. This type of action led to significant losses among small investors due to the strong market volatility.
For example, some large investors made massive sales or large purchases in short periods, generating sudden price swings and causing panic in the market.
Source: CryptoCompare study on digital market manipulation and its impact on Ethereum.
4. Return of Confidence in Bitcoin and Abandonment of Ethereum
At various times, investors have returned to Bitcoin as a "safe haven" within the crypto market. Although Ethereum introduced many innovative solutions, Bitcoin maintained its reputation as the primary and most reliable asset. As fears about inflation and manipulation in the Ethereum market grew, many investors opted to return to Bitcoin, negatively impacting Ethereum's price.
Source: Glassnode and Bloomberg studies on the recovery of confidence in Bitcoin and its impact on Ethereum.
5. Competition from Other Blockchain Networks
Recently, other blockchain networks like Polkadot and Binance Smart Chain have gained popularity, thanks to their faster speeds and lower transaction costs compared to Ethereum. These new networks pose a direct threat to Ethereum by offering similar solutions but, in some cases, with improved features, leading several projects to migrate to other platforms.
Source: TechCrunch and CoinTelegraph articles on the growing competition between new blockchain networks and Ethereum.
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Conclusion
In conclusion, although Ethereum remains one of the most important and influential digital assets in the cryptocurrency market, it faces significant challenges that contribute to its price volatility. The failure of many projects based on its network, investor manipulation, competition from new blockchains, and the return of investors to Bitcoin are all factors impacting its performance.
Investors should exercise caution, maintain a long-term view, and remain realistic, keeping in mind that the cryptocurrency market remains highly volatile and unstable.
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