Over the past few weeks, Ethereum has delivered disappointing results for its investors, leading to concerns whether the second-largest cryptocurrency by market capitalization has lost its luster. The cryptocurrency continues to hover around the $3,100 level without causing any significant upside breakouts. This indicates frail fundamentals that could cause prices to fall.

Ethereum is not making significant moves

Markus Thielen, research director at 10x Research, pointed out some disturbing changes in Ethereum’s price. In a up-to-date report shared with NewsBTC, he explains that despite Ethereum remaining highly correlated to Bitcoin with an R-Square of 95%, it continues to perform poorly while the latter has reached up-to-date all-time highs.

Thielen points to ETH’s performance during the recent bull market, which was closely tied to up-to-date sectors emerging on the network such as decentralized finance (DeFi) and non-fungible tokens (NFTs). This caused a surge in demand, which in turn drove up the price as users gobbled up ETH in exchange for the high gas fee required to transact on the blockchain.

However, Ethereum failed to maintain this pace, which can be attributed to its inability to provide timely updates that users needed. Thielen explains that the Dencun upgrade, which helped address high gas rates, came three years too delayed because by 2024, when the upgrade arrived, users had moved to Layer 2 networks. Other Layer 2 networks were also at that time 1 have seen an escalate in the number of users, one example of which is Solana.

Source: 10x Research

The researcher further explained that ETH’s frail fundamentals are currently not only affecting its price, but are also impacting Bitcoin. “Ethereum’s weak fundamentals are becoming a hindrance to Bitcoin because they prevent a broad inflow of fiat into the crypto ecosystem,” Thielen said.

Better low ETH

Thielen’s analysis of Ethereum also translates into a decline in the exploit of stablecoins on the network. In 2021, Ethereum dominated stablecoin transactions such as USDT and USDC. However, it appears that high fees have steered users towards other networks. Blockchains like Tron (TRX) currently dominate stablecoin transactions, leaving ETH in the dust.

Additionally, there is also the fact that ETH issuance is once again becoming inflationary. Following the completion of the London Difficult Fork, also known as EIP-1559, in 2021, its issuance became deflationary for the first time in history as ETH burned quickly outnumbered ETH put into circulation.

However, this has changed in recent months as more ETH has been issued than burned, notes Thielen. For comparison, a total of 74,000 ETH was issued compared to just 43,000 ETH. This inflation, combined with the fact that staking rewards have now dropped to 3%, below the 5.1% offered by Treasury Yields, Ethereum has had a tough time maintaining bullish sentiment.

Given this development, the researcher believes that it is better to remain bearish on Ethereum right now. “At the moment, we would feel more comfortable holding a short position in ETH rather than a long position in BTC because Ethereum’s fundamentals are fragile, which is not yet reflected in ETH prices,” Thielen concludes.

ETH price fails to hold $3,100 | Source: ETHUSD on Tradingview.com

Featured image from Watcher Guru, chart from Tradingview.com