Why Ether price in 7-month decline amid ‘L1 wars

Ether, the second-largest cryptocurrency by market capitalization, has been stuck in a persistent seven-month decline, reflecting growing competition among Layer-1 (L1) blockchain networks. As of mid-October, Ether's price has plummeted over 36%, falling from its yearly high of $4,111 in March 2024 to its current level near $2,600. According to market experts, this downward pressure is driven by a variety of factors, most notably the intensifying "L1 wars" among major blockchains, including Ethereum, Solana, and Avalanche.

Ethereum's Struggle in the L1 War

One of the primary reasons behind Ether's lackluster performance is its diminishing dominance in the L1 blockchain space. Ethereum, once seen as the frontrunner in blockchain scalability and innovation, has been losing ground to newer competitors. The so-called "L1 wars" refer to the ongoing battle among top blockchain networks to solve the blockchain trilemma—balancing security, scalability, and decentralization.

ETH/USD, 1-year chart. Source: Cointelegraph


Ethereum, while highly secure and decentralized, has struggled with scalability issues that newer networks, such as Solana, seem better positioned to address.

Pseudonymous crypto analyst Ignas recently commented on Ethereum's position in this L1 race, stating, “Overall, Ethereum isn’t the winner of the L1 wars.” He also pointed out that Ethereum’s Layer-2 (L2) solutions, while improving scalability, have not yet clearly shown how value accrues back to the main network, leaving Ethereum in a vulnerable position. Ignas further noted, "That’s a good thing for the crypto industry" because it opens opportunities for other L1 networks to thrive by catering to specific use cases that Ethereum may not handle efficiently.

Solana's Monolithic Appeal

Of the competing networks, Solana has emerged as one of the biggest challengers to Ethereum's market share. Solana's monolithic architecture allows it to process transactions at a significantly higher speed compared to Ethereum, which relies heavily on L2 solutions to enhance scalability. According to Ignas, “Solana is the biggest slap in the face of ETH Maxis,” referring to Ethereum maximalists who believed Ethereum would maintain its dominance unchallenged.

Ethereum L2s, price performance. Source: Ignas


Solana's success has been reflected in its price performance. Over the past year, Solana's SOL token has surged by over 552%, vastly outperforming Ether's 57% gain during the same period. While both cryptocurrencies have faced price declines since March 2024, Solana’s approach has attracted more attention from investors, further pressuring Ether's market position.

Moreover, Ethereum’s reliance on L2 networks to scale has fragmented liquidity across its ecosystem, making Solana's simpler, unified structure more appealing to both developers and users. This fragmentation has driven some Ether holders to shift their investments to competing L1 networks, such as Solana, leading to further Ether sell-offs and price declines.

Investor Sentiment and Technical Signals

Investor sentiment around Ether has also been affected by external factors, including regulatory scrutiny and security concerns in the decentralized finance (DeFi) space. Ethereum remains the leading platform for DeFi applications, but recent high-profile exploits and increasing regulatory pressure on stablecoins and crypto exchanges have dampened enthusiasm. The November 2023 exploit of KyberSwap, a decentralized exchange, highlighted vulnerabilities in Ethereum’s DeFi ecosystem, driving cautious behavior among investors.

According to Cointelegraph data, Ethereum's decentralized applications (DApps) have seen declining activity, with a 21.8% drop in volume recently. This reduction in DApp usage, combined with ongoing competition from blockchains like BNB Chain and Solana, has contributed to a weakening demand for Ether.

In terms of technical analysis, Ether’s price appears to be setting up for a potential correction. Crypto trader Justin Bennett has identified a possible diamond reversal pattern on the ETH/USD one-hour chart, suggesting that Ether could correct to around $2,485 if the pattern confirms with a close below support. However, even if a short-term bounce occurs, the broader downtrend remains intact as long as Ether struggles to regain its position in the L1 race.

The Future of Ether Price

Looking ahead, Ether faces several challenges. The growing strength of rival blockchains like Solana, along with Ethereum’s reliance on L2 solutions and the fragmentation of its ecosystem, has made it difficult for ETH to regain its upward momentum. While Ethereum’s transition to a proof-of-stake consensus mechanism has improved energy efficiency and staking rewards, it has not fully resolved scalability issues or increased demand from institutional investors.

SOl vs. ETH, 1-year chart. Source: Cointelegraph


For now, Ether's price action remains closely tied to the broader cryptocurrency market, particularly Bitcoin's performance. Bitcoin has also been stuck in a downtrend, adding pressure to the entire crypto space. Analysts remain cautious about Ether’s near-term outlook, with many predicting that further declines could be ahead if Ethereum continues to lose ground in the L1 wars.

Ether's ongoing price slump is a reflection of its competitive standing in the evolving blockchain landscape. The battle for L1 supremacy continues, and while Ethereum remains a dominant force in the crypto world, its position is increasingly being challenged by newer, more scalable networks like Solana. As the L1 wars progress, Ether’s price trajectory will likely depend on its ability to retain developer interest and address the liquidity fragmentation caused by its L2 scaling solutions.

References

1. CoinTelegraph - Discusses how Ethereum’s price might decline due to increasing supply despite the launch of spot ETFs, with insights into supply trends post-Merge and the potential for future price movement: Read more on CoinTelegraph​
2. Cointelegraph
3. Investopedia - Provides a detailed analysis of Ethereum’s price drop following the launch of spot ETFs, along with comparisons to similar trends in Bitcoin and comments on institutional interest in crypto ETFs: Read more on Investopedia​
4. Investopedia