Ethereum (ETH) experienced a brief surge, rebounding 14.2% to $2,223 on March 4, after testing the $2,000 support level. However, despite this price rebound, ETH has struggled to maintain levels above $2,200. Over the past two weeks, ETH has underperformed the broader cryptocurrency market by approximately 11%, reflecting growing uncertainty among investors. To regain bullish momentum, Ethereum must address several key obstacles that are currently undermining its performance.

Key Factors Behind Ethereum’s Struggles

While pinpointing the exact reasons behind Ethereum’s underperformance is challenging, several factors appear to be contributing to weakening investor sentiment. The decline in on-chain activity, a falling Total Value Locked (TVL), and an increase in the net positive ETH issuance rate are among the main concerns. Additionally, speculation surrounding the potential for Ethereum’s inclusion in a U.S. strategic digital asset reserve has caused further uncertainty. Overall, demand for ETH, as Ethereum’s native token, is weaker than expected.

Weakening On-Chain Activity and ETF Concerns

Ethereum’s on-chain activity has shown signs of slowing down, which has raised investor worries. One key indicator of this decline is the drop in volumes across decentralized exchanges (DEX), with Ethereum maintaining leadership in the space but losing ground to competitors like Solana. For example, Ethereum saw a 49% decline in activity on Curve Finance and a 16% drop in Pendle volumes, according to DefiLlama data.

Another area of concern is Ethereum’s TVL, which has fallen 13% in the past two weeks to $50.8 billion. While this is a notable drop, it is important to recognize that other chains, such as BNB Chain, also experienced declines in TVL. However, BNB’s TVL remains significantly smaller at $5.1 billion, while Ethereum continues to dominate in absolute terms. Still, the slowdown in Ethereum’s TVL raises questions about the token’s ability to outperform the broader cryptocurrency market in the near term.

Decreasing Transaction Fees and Rising ETH Supply

Ethereum has experienced a peculiar situation where transaction fees have dropped below $1 for the first time since July 2020. This decrease in fees is a result of reduced demand for blockchain processing, which also leads to an increase in ETH supply. The burn mechanism introduced by Ethereum Improvement Proposal (EIP) 1559 was expected to help offset supply growth, but the expansion of blob space for Layer-2 scalability solutions has largely neutralized this effect.

This combination of low transaction fees and increasing supply has contributed to concerns over Ethereum’s long-term price potential. While Ethereum’s network remains vital, with significant volumes on DEXs, the growing supply could eventually weigh heavily on its price.

Potential Upside Limited by Speculation and Regulatory Concerns

Speculation over the future of Ethereum intensified following declaration related to the U.S. crypto landscape. As the U.S. plans to create a strategic digital asset reserve, the focus has mainly been on Bitcoin (BTC) as a leading asset. Ethereum’s inclusion in such a reserve seems unlikely, and this may dampen institutional interest in ETH.

Moreover, the upcoming “Pectra” network upgrade aims to balance fee distribution within the Ethereum ecosystem, but it remains uncertain whether this will be enough to address the ongoing challenges. With institutional interest waning and concerns over Ethereum’s long-term viability, ETH’s chances of surpassing the $2,200 resistance and achieving sustained gains seem limited for now.

Conclusion

Ethereum’s struggle to hold above the $2,200 level highlights several challenges facing the network. Weakening on-chain activity, declining TVL, and an increase in ETH’s supply have all played a role in dampening investor sentiment. Furthermore, the uncertainty surrounding Ethereum’s future in the context of U.S. digital asset policies could limit its upside potential. Unless key structural issues are addressed, Ethereum may face continued difficulty in maintaining bullish momentum.

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