Why Is Ethereum Price Underperforming in 2025?

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Ethereum (ETH), the second-largest cryptocurrency by market capitalization, is navigating one of its most challenging phases in 2025. After years of leading innovation in decentralized finance (DeFi), smart contracts, and blockchain scalability, ETH has seen a dramatic price correction—plummeting nearly 46% in the first quarter alone. As investor sentiment wavers and network activity slows, questions arise: What’s behind Ethereum’s underperformance? And can it recover?

This article explores the key factors contributing to Ethereum’s current slump, from declining transaction fees and reduced burn rates to the rise of Layer-2 networks. We’ll also examine investor behavior, price trends against Bitcoin, and whether upcoming upgrades like Pectra could reignite momentum.

Declining Transaction Fees Signal Reduced Network Activity

One of the clearest indicators of Ethereum’s slowdown is its sharply reduced transaction fees. According to blockchain analytics firm _IntoTheBlock_, total fees collected on the Ethereum network dropped by nearly 60% in Q1 2025, settling at just $208 million by early April—the lowest level since 2020.

This decline reflects a broader shift in how users interact with the Ethereum ecosystem. High gas fees, once a hallmark of network congestion during bull markets, have given way to cheaper, more efficient alternatives. With fewer high-value transactions occurring directly on the mainnet, revenue for validators and the overall economic activity have taken a hit.

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Slower ETH Burn Rate Raises Inflation Concerns

A critical mechanism introduced with EIP-1559 was the ETH burn—a process that removes a portion of transaction fees from circulation, effectively making ETH deflationary during periods of high usage. However, in 2025, this mechanism is underperforming.

Data shows that ETH burned is now at its lowest level since EIP-1559’s implementation in August 2021. Major platforms that once drove significant fee burns are seeing dramatic declines:

With fewer fees being burned, Ethereum’s net issuance is turning positive—meaning more ETH is entering circulation than being removed. DeFi analyst Michael Nadeau warns this could lead to an inflation rate higher than Bitcoin’s, a troubling prospect for long-term holders who value scarcity.

This shift undermines one of Ethereum’s key selling points: its potential to become a deflationary digital asset. If user activity doesn’t rebound, inflationary pressure may persist, further dampening price momentum.

Layer-2 Networks Are Redefining Ethereum’s Usage

The rise of Layer-2 (L2) scaling solutions is both a success story and a challenge for Ethereum. While L2s like Base, Arbitrum, and Optimism were built to reduce congestion and lower costs on the mainnet, their growing popularity has inadvertently diverted traffic—and revenue—away from Ethereum itself.

Coinbase’s Base network now processes over 80 transactions per second, outpacing other L2s in adoption and throughput. These networks offer near-instant transactions at a fraction of mainnet costs, making them ideal for everyday DeFi use, NFT trading, and micro-payments.

The Dencun upgrade, launched in March 2024, played a pivotal role by introducing proto-danksharding and data blobs—technology that drastically reduced L2 rollup costs. While this was a win for scalability, it accelerated the migration of users off the main chain.

As a result, Ethereum’s core network appears quieter—not because the ecosystem is shrinking, but because activity has decentralized across L2s. Still, this shift impacts metrics like fee revenue and on-chain activity that traditional investors use to gauge health.

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ETH/BTC Ratio Hits Five-Year Low

Ethereum’s relative performance against Bitcoin has reached a critical low. Since January 2025, ETH fell from over $3,300 to $1,805 by early April—a 45% drop. In contrast, Bitcoin surged to an all-time high of $109,000 before correcting modestly (~10%).

This divergence has pushed the ETH/BTC exchange rate to its weakest point in five years. A falling ratio suggests that investors are favoring Bitcoin as a store of value amid macroeconomic uncertainty, while reallocating away from altcoins like Ethereum.

Several factors contribute to this trend:

While Ethereum remains dominant in DeFi and developer activity, its price performance is increasingly being judged not just on absolute value—but in relation to Bitcoin’s dominance.

Whales Are Accumulating: A Sign of Confidence?

Despite the bearish indicators, large investors—commonly known as “whales”—are stepping in. IntoTheBlock data reveals that Ethereum whales have accumulated over 130,000 ETH since the price dipped below $1,800.

This buying pressure suggests strong conviction among deep-pocketed players who believe in Ethereum’s long-term fundamentals. Historically, whale accumulation often precedes market reversals, as it indicates confidence in a bottom forming.

Moreover, some analysts remain bullish:

Such projections hinge on whether Ethereum can reassert itself as the premier platform for decentralized applications—not just through technology, but through economic vitality.

Can the Pectra Upgrade Restore Momentum?

All eyes are now on Ethereum’s upcoming Pectra upgrade, expected in May 2025. This hard fork aims to enhance network efficiency with several key improvements:

If successfully implemented, Pectra could boost participation in staking, improve scalability, and incentivize developers to build more complex applications directly on Ethereum.

Crucially, it may also help rebalance economic flows back to the mainnet by making interactions faster and cheaper—even as L2s continue to thrive.

Frequently Asked Questions (FAQ)

Why has Ethereum’s price dropped so much in 2025?

Ethereum’s price decline stems from reduced on-chain activity, lower transaction fees, decreased ETH burning, and strong Bitcoin outperformance. Additionally, user migration to Layer-2 networks has diluted mainnet revenue.

Are Layer-2 networks bad for Ethereum?

No—they’re a sign of success. L2s solve scalability issues and improve user experience. However, they do shift transaction volume and fees away from the main chain, which affects short-term economic metrics.

Is Ethereum becoming inflationary?

Yes—temporarily. With fewer transactions burning ETH via EIP-1559, the network’s net issuance has turned positive. If activity remains low, this inflationary trend could persist until demand rebounds.

Why are whales buying ETH now?

Whales often buy during market downturns when valuations appear attractive. Their accumulation suggests confidence in Ethereum’s long-term utility, upcoming upgrades, and eventual recovery.

Could Ethereum still reach $5,000 in 2025?

Some analysts believe so—if the Pectra upgrade succeeds, staking dynamics improve, and macro conditions stabilize. However, this depends on renewed investor interest and increased on-chain demand.

What is the significance of the ETH/BTC ratio?

The ETH/BTC ratio measures Ethereum’s strength relative to Bitcoin. A falling ratio indicates capital rotation into BTC, often during risk-off periods. A recovery would signal renewed appetite for altcoins and ecosystem innovation.

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While Ethereum faces headwinds in 2025—from fee declines to competition within its own ecosystem—its underlying fundamentals remain robust. The shift to Layer-2s reflects growth rather than failure, and whale accumulation hints at a potential turnaround.

The Pectra upgrade may be the catalyst needed to reignite confidence. Whether Ethereum regains its former momentum will depend not just on technology, but on restoring economic incentives that drive user participation and value accrual back to the core network.