Ethereum's Drop Below $2.5K Sparks Fundamental Concerns

In Brief:

Ethereum's price fell below $2,500, driven by high transaction fees and network congestion, causing a decline in demand for native staking.

Competing blockchains like Solana are gaining ground, and concerns about Ethereum's scalability and upcoming upgrades contribute to investor uncertainty.

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Surprise ETH Price Drop Below $2.5K Raises Questions About Ethereum Fundamentals

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Ethereum's price took a surprising dive, dropping by 9.6% from October 20 to October 23, following a strong rejection at the $2,700 level. This decline erased the gains of the previous ten days, and as Ether stabilizes near $2,500, its 30-day performance remains negative, down by 6%.

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The broader cryptocurrency market also saw a 5% drop in total market capitalization during this period, but Ethereum's underperformance relative to the market, which is up 1.9% over the past 30 days, has left investors questioning the network's fundamentals.

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Network Congestion and Rising Competition

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Ethereum's average transaction fees of $4 over the past two weeks indicate robust onchain activity, but they also highlight the appeal of lower-cost alternatives. Competing blockchains like Solana have seen significant growth, with Solana's network recording $13.4 billion in volume over the past week, 67% higher than Ethereum's activity.

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Decentralized exchange (DEX) volumes on Ethereum dropped by 13% in the seven days ending on October 23, while Solana's Raydium and Lifinity saw substantial increases. Ethereum's total value locked (TVL) has also disappointed investors, with a 5% decline in TVL compared to a month ago.

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Concerns Over Upcoming Upgrades

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The Ethereum network has seen a net decrease of 191,000 ETH staked over the past 30 days, valued at $492 million, as validators withdraw Ether. This decline in deposits is concerning for ETH's supply and demand dynamics, especially as competing networks like Solana and BNB Chain maintain or increase their TVL.

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Additionally, uncertainty surrounds Ethereum's upcoming Prague-Electra upgrade, initially expected in early 2025, which aims to address scalability issues. Concerns about potential delays and the effectiveness of these changes contribute to investor uncertainty and impact Ether's long-term growth prospects.

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