The Dilemma and Future of Ethereum: The Complex Interaction of Market Expectations, Technological Innovation, and Capital Games

Since 2022, Ethereum (ETH) has been a major asset in the cryptocurrency market, but its price performance has shown a significant gap from market expectations. Although its ecosystem still dominates the decentralized finance (DeFi) space with over 55% of the total locked value, the long-term performance of ETH has been poor, with its growth being surpassed by some emerging public chains, and it even faces doubts about "ecosystem prosperity but token value not reflected." This article will analyze the complex logic behind Ethereum's current weak performance from three aspects: market sentiment, technological innovation bottlenecks, and capital trends.

1. Market Expectation Mismatch: Narrative Shift and the Unexpected Effects of ETFs

Ethereum was once the core driving force behind the DeFi and NFT waves. However, in recent years, as market hotspots have shifted towards artificial intelligence, real-world assets (RWA), and meme coins, its dominant position has been challenged. Many emerging AI projects and meme coins have not chosen Ethereum as their primary platform, leading to its gradual marginalization in emerging narratives.

At the same time, while Ethereum's Layer 2 (L2) scaling solutions have alleviated the performance bottlenecks of the mainnet to some extent, their feedback effect on the ecosystem is not significant. There is intense competition within the Rollup technology camp, with developers overly focused on infrastructure improvements and neglecting innovation at the application layer. This resource dispersion has not only failed to expand the user base but has also caused transaction volume and activity to flow to other competing public chains.

In addition, unlike the influx of funds when the Bitcoin ETF was launched, there has been an outflow of funds after the ETH ETF was listed, partly due to the selling pressure from certain investment institutions' old products. However, paradoxically, institutional investors' long-term interest in ETH is still growing. Some analysts predict that due to mechanisms such as staking yields (28% of ETH staked), smart contract locking (7.5%), and ETF absorption (3%), ETH may become an "institutionally favored asset" by 2025. This inconsistency between short-term and long-term expectations highlights the market's confusion regarding ETH's value capture capability.

II. The Double-Edged Sword of Technological Upgrades: From "Deflation Narrative" to Ecological Imbalance

Technical upgrades have been a core narrative for Ethereum in recent years, but they have also brought many unexpected side effects. Ethereum's multiple upgrades (such as the Merge and EIP-1559) have successfully achieved supply deflation, but the recent upgrade that reduced data storage costs has weakened the mainnet's revenue sources, indirectly affecting the appreciation potential of ETH. Furthermore, after the latest upgrade, the community's expectations for shard chains have shifted to L2, but the development strategy of the L2 ecosystem relies too heavily on commercial narratives and has failed to substantively expand the user base.

The internal divergence within the Ethereum community regarding the development roadmap has exacerbated the technical dilemma. Some core members criticize the existing roadmap as "too conservative" and call for an acceleration of the upgrade plan; while other developers question the strategy of "relying solely on L2 scaling" and advocate for a large-scale upgrade of the mainnet. This oscillation in technical direction exposes the issue of Ethereum's lack of strong leadership. Despite the founder repeatedly emphasizing that "price is not the primary goal," the actions of core community members selling off ETH are still interpreted by the market as a signal of insufficient confidence.

3. Capital Game: The Struggle Between Institutional Entry and Internal Selling Pressure

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

Despite the weak price performance, institutional funds are quietly entering the market. Some analysis reports indicate that the limited supply of ETH, staking yields, and compliance make it the "preferred smart contract platform for institutional adoption." Predictions suggest that the total amount of Bitcoin held by enterprises may exceed the holdings of its founders by 2025, while ETH may regain capital favor due to trends like stablecoins, asset tokenization, and AI agents.

At the same time, the selling behavior of core members of the Ethereum community has triggered a chain reaction. In December 2024, reports indicated that a large amount of cashing out occurred at price peaks, with some investors precisely transferring over 100,000 ETH to exchanges at those highs, exacerbating market concerns about "insider bearishness." This capital movement has formed a hedge against institutional entry, resulting in ETH being trapped in a "value discovery" stalemate.

4. Founder Paradox: "Fearful Bull Market" and the Dilemma of Ecological Transformation

The founder of Ethereum once stated in a documentary that he is "afraid of bull markets", which reveals the core contradiction faced by Ethereum:

• Decentralization Challenge: While Ethereum's DeFi culture has established its early position, it has also led to an over-reliance on financial arbitrage within the ecosystem. The community is calling to "step out of the DeFi shadow" and shift towards practical scenarios that integrate with traditional internet (such as prediction markets and identity verification), but progress has been slow.

• Balancing Regulation and Innovation: The regulatory authorities' ambiguous stance on Ethereum (such as the delay in clarifying its securities attributes) has suppressed institutional confidence. Although the policy environment may bring changes, Ethereum still needs to find a new balance between compliance and decentralization.

V. Future Outlook: Path to Breakthrough and Potential Catalysts

Although the price performance of Ethereum may still be constrained by internal selling pressure, market sentiment, and a narrative vacuum in the short term, its future remains promising in the long run.

If Ethereum can embrace the trend of modularity and position itself as "settlement layer + data availability layer", while also incorporating the execution layer advantages of other high-performance public chains, it may be able to restructure its voice in the industry. In addition, accelerating the implementation of privacy technologies such as zero-knowledge proofs may open up new application scenarios like AI agents and decentralized storage.

In 2025, changes in relevant legislation and regulatory policies may open up compliance channels for Ether. If the staking ETF is approved or a physical creation mechanism is introduced, institutional demand for Ether may experience a surge. At the same time, the entry of corporate funds and sovereign wealth funds may reverse the current capital game landscape.

The weakness of Ethereum is essentially the result of the resonance of the market, technology, and capital. Its predicament does not stem from a single factor, but is an inevitable pain experienced during the ecological transformation period. In the short term, price fluctuations will still be subject to internal selling pressure and a narrative vacuum; in the long term, if new support can be found in modularization, compliance, and de-financialization, ETH is still expected to return to a growth trajectory.

Some industry analysts predict that "digital oil" Ether is expected to break through the $8000 mark in 2025. With the accelerated rollout of ETH staking ETFs and institutions' reevaluation of Ethereum's value, the reassessment of ETH's value may just be a matter of time.