Ethereum Price Action Faces Backlash Despite Network growth

Social sentiment around Ethereum price action has been leaning more towards dissatisfaction lately.

Many investors have been taking to social media to express disappointment with its underperformance.

One of the main reasons for this criticism was that Ethereum price action has only managed to hold on to a mere 26% gain from its lowest price in the last 12 months.

This was largely courtesy of its latest pullback from its December peak.

The sentiment that Ethereum price has been underperforming is based on its historic performance.

To put things into perspective, Bitcoin exchanged hands at a 152% premium from its lowest price in 2024. The same subdued performance was observed recently.

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Such negative sentiments may dent investor confidence. On the other hand, this also means ETH is still trading at a considerable discount and may thus offer significant potential upside.

Why Ethereum price has been underperforming and why it could be an opportunity

One of the biggest reasons why ETH has not delivered nearly as much gains as expected could be Bitcoin Dominance.

Most investors including institutions have been choosing Bitcoin as the safer and more popular choice thanks to its first mover advantage.

Bitcoin dominance has been on an overall uptrend since September 2022, with the occasional dips every now and then.

In fact, its latest dominance peak was the highest in more than 3 years.

A considerable dip in Bitcoin dominance is always good for Ethereum price action.

This is because it sets the pace for liquidity flows into altcoins and ETH stands to benefit significantly.

Even liquidity flows in Bitcoin have been significantly low compared to those of Bitcoin.

Another potential reason could be the growing competition from networks that offer similar services to Ethereum.

Interestingly, Bitcoin dominance recently entered into overbought territory according to the RSI.

This means it could pivot and pave the way for another altcoin rally. Meanwhile, Ethereum price was almost oversold at the time of observation.

However, it did not show any significant signs of changing demand characteristics to indicate a surge in demand.

Even ETH exchange inflows were slightly higher than outflows at the time of observation.

Has Ethereum Price Weakness Been Driven by Network Factors?

Ethereum may have had its fair share of challenges in the past which include network congestion and high gas fees.

The later was particularly one of the major reasons why rivals have been so successful but that may no longer be the case.

Ethereum layer 2s may have evened out the playing field and this was evident in various metrics underpinning its performance.

For example, daily active addresses have grown by 5.9 times in the last 5 years.

Ethereum transaction throughput was up by 24.3X and daily transactions were up 13.6X during the same period.

The Ethereum mainnet reportedly handles only 3% of the transactions while layer 2s carry the rest of the weight.

The transaction shift to layer 2s may have had a significant impact on organic demand.

However, it is unclear whether this had a major impact on Ethereum price action.

Despite these observations, ETH is still attractive to many investors. Among them include BlackRock which has been aggressively adding to its ETH holdings.