Standard Chartered Slashes Ethereum Price Forecast by 60% Amidst Layer-2 Competition

Standard Chartered has made headlines by drastically cutting its price forecast for Ethereum (ETH) for 2025 from $10,000 to just $4,000. This significant reduction reflects the bank's concerns over Ethereum's declining market position due to increasing competition from layer-2 solutions, which are siphoning off transaction fees and revenue from the main Ethereum network.

Key Takeaways

• Standard Chartered reduces Ethereum's 2025 price target from $10,000 to $4,000.

• The bank cites competition from layer-2 solutions like Base as a primary factor.

• Ethereum's market capitalization has decreased by approximately $50 billion.

• Analysts predict a continued decline in Ethereum's value relative to Bitcoin.

Reasons Behind the Price Cut

Geoff Kendrick, the global head of digital assets research at Standard Chartered, explained that Ethereum is facing a structural decline. The rise of layer-2 networks, particularly Base, has led to a significant reduction in transaction fees on the Ethereum mainnet, which in turn has diminished its revenue potential.

• Layer-2 Solutions: These networks are designed to enhance transaction speed and reduce costs, but they are also diverting profits away from Ethereum. Kendrick noted that Base alone has extracted around $50 billion in market capitalization from Ethereum.

• Economic Fundamentals: Ethereum's economic fundamentals are weakening due to high net issuance of ETH and reduced gas fees, which further erode its revenue potential.

The Impact of Recent Upgrades

The Dencun upgrade, which was intended to improve Ethereum's performance, has inadvertently benefited layer-2 solutions more than the main network itself. This has resulted in a lower gross domestic product (GDP) for Ethereum, as transaction fees are increasingly bypassing the mainnet.

• Commoditization of Ethereum: Kendrick argues that Ethereum has "commoditized itself" within its own layer-2 framework, leading to a loss of value as transaction fees are redirected.

Future Outlook for Ethereum

Despite the bleak short-term outlook, there are some glimmers of hope for Ethereum's long-term prospects. The bank anticipates that Ethereum could recover to $7,500 by 2028-2029, provided it can adapt to the changing landscape.

• Tokenized Real-World Assets (RWAs): Ethereum's involvement in tokenizing real-world assets could provide a significant growth avenue, although this is expected to take time.

• Potential Solutions: Kendrick suggests that taxing layer-2 networks could help reclaim some of the lost revenue, but he considers this unlikely to happen.

Conclusion

Ethereum currently trades around $1,900, significantly down from its all-time high of approximately $4,878 in November 2021. As the cryptocurrency market continues to evolve, Ethereum faces multiple challenges, including competition from layer-2 networks and declining revenue. While there is potential for recovery in the long run, immediate prospects remain uncertain, necessitating substantial changes to reverse the current downward trend.

Sources

• Standard Chartered Cuts ETH Price Target for 2025 by 60%, Born2Invest.

• Standard Chartered Cuts Ethereum Price Forecast by 60% for 2025, Citing Increased Competition and Declining Revenue, Yahoo Finance.

• Standard Chartered Downgrades Ethereum's 2025 Price Forecast - News and Statistics, IndexBox.

• Standard Chartered Cuts 2025 Ethereum Price Target to $4,000, The Crypto Times.

• Standard Chartered slashes Ethereum (ETH) price prediction for 2025 from $10K to $4K, Mitrade.