Is Ethereum A Sinking Ship? A Closer Look At Underperforming ETH

Once hailed as the engine of decentralized innovation, Ethereum is now slipping down the ranks of investor confidence. While Bitcoin surges to new highs and alternative Layer-1s pick up momentum, ETH is underperforming across every key metric, from price action to user activity.

In recent months, Ethereum has lost both technical strength and cultural relevance. On-chain activity is declining. Major price supports are breaking. And institutional narratives are increasingly centred around Bitcoin.

So, is Ethereum still in a temporary slump, or are we witnessing a more structural fall from grace?

ETH/BTC correlation and price divergence

Ethereum’s recent price action continues to reflect broader underperformance. At time of writing, ETH was trading at $1,569, down nearly 6% intraday, extending its multi-week downtrend.

The asset has now lost over 25% since mid-March and remains trapped under a firm descending resistance structure.

The daily chart showed a clear rejection at $1,670, with high sell volume accompanying the move. The long upper wick on the latest candle signals that bulls attempted to regain control but were swiftly overpowered. Price remained below the 20-day moving average, confirming sustained bearish momentum.

The volume bar indicates that sellers remain active at key psychological levels. ETH has failed to reclaim the $1,600 level multiple times, and continued failure here could set up another retest of the $1,450-$1,500 support range.

A notable observation from the chart is the Correlation Coefficient (CC) between ETH and BTC, which now sits at 0.95.

While this still signals a strong positive correlation, it’s slightly below earlier readings that approached 0.98 in February. This dip suggests ETH may no longer be moving in perfect lockstep with Bitcoin, further emphasizing its relative weakness.

The broader takeaway is that Ethereum is lagging behind Bitcoin in narrative and technical structure. Without a decisive reclaim of the $1,670-$1,700 range and an uptick in bullish volume, the path of least resistance remains downward.

Shrinking user base: Ethereum’s Daily Active Address decline

Network health metrics tell a story Ethereum enthusiasts can’t ignore. According to Santiment, Ethereum’s Daily Active Addresses have fallen sharply, from highs above 600,000 in 2021 and early 2023 to around 229,000 at the time of this writing.

While L1 gas fees have declined, this hasn’t translated into renewed usage. Lower gas spikes typically signal a decrease in high-frequency, high-value activity, such as DeFi arbitrage, liquidations, and NFT mints. In short, economic activity on Ethereum’s mainnet is cooling.

The decline could stem from the migration to Layer-2 platforms or a lull in on-chain innovation. Either way, fewer active addresses reflect waning engagement on a chain that once thrived on daily interaction.

More holders, but less activity: A silent exodus?

Interestingly, the number of ETH holders continues to rise. Santiment data shows the total number of holders reaching 140 million wallets.

At face value, this seems bullish. However, compared with falling active addresses, it suggests that while people are holding ETH, they’re not using it.

This divergence points to a silent exodus of utility, even if speculative interest remains intact. Ethereum is becoming more of a store-of-value asset than a utility-driven one.

The trend also shows how staking and cold storage dominates the ETH landscape. As more ETH is locked into smart contracts or withdrawn to hardware wallets, fewer tokens are circulating in transactional use cases. This reinforces price rigidity and lowers volatility but does little to boost on-chain vibrancy.

The L2 dilemma: Growth at the core’s expense

Layer-2 networks like Base, Optimism, and Arbitrum have seen tremendous growth. According to Dune Analytics, transaction volumes on Base and Optimism have rivaled or even surpassed Ethereum mainnet on multiple occasions in 2025.

But this isn’t all good news for ETH. While L2s rely on Ethereum for settlement, they increasingly operate as their own ecosystems with distinct tokens, user bases, and narratives. As more users opt for L2s, Ethereum L1 risks becoming an expensive settlement layer, disconnected from daily user interactions.

Base, for instance, saw consistent transaction counts north of 10 million per day earlier in 2025, while Ethereum L1 struggled to maintain just a fraction of that. This highlights how user-facing activity has moved to cheaper, more agile platforms, especially for use cases like gaming, meme tokens, and low-stakes DeFi.

Additionally, many retail users are unaware they’re even interacting with Ethereum when using L2s. Wallet abstraction, rollup-native incentives, and minimal gas fees have abstracted away Ethereum branding, further diluting its front-end dominance.

Ethereum Foundation ETH sales raise eyebrows

The Ethereum Foundation’s history of well-timed ETH sales adds to bearish sentiment. Since 2021, the Foundation has offloaded over 39,000 ETH across multiple transactions, often close to local market tops.

A notable instance occurred in November 2021, when 20,000 ETH were sold shortly after ETH hit its all-time high. More recently, in January 2025, the Foundation sold 300 ETH at $981,000 in a move that sparked fresh criticism from the community.

Though transparent and likely earmarked for operational funding, these sales, timed near price peaks, have reinforced retail distrust. The optics suggest insiders are offloading before major corrections, creating a narrative of internal bearishness even when strategic.

Rising competition: Solana, BNB, and the UX wars

Ethereum’s technical roadmap includes innovations like Proto-Danksharding and full Danksharding. But these upgrades remain years away. In the meantime, other blockchains have caught up and, in some cases, surpassed Ethereum in terms of user experience.

Solana has gained favor for its low fees and high throughput, particularly in the NFT and gaming sectors. BNB Chain, backed by Binance, remains attractive for its easy onboarding and deep liquidity. With its subnets, even Avalanche is making inroads among enterprise use cases.

What do all these ecosystems have in common? Speed, simplicity, and affordability. Ethereum, by contrast, is often described as slow, expensive, and fragmented, issues it must address before the next cycle peaks.

Not all doom: ETH’s long-term strengths

Despite the headwinds, Ethereum’s core strengths remain formidable. It still dominates DeFi. According to DeFiLlama, Ethereum hosts over $65billion in total value locked (TVL), more than 50% of all assets in decentralized finance. This figure is not just symbolic; it reflects deep institutional trust.

Ethereum’s security model, bolstered by its transition to Proof-of-Stake, also remains unmatched. The deflationary effect of EIP-1559 and staking dynamics have improved ETH’s long-term value proposition.

Unlike many competitors, Ethereum benefits from composability and a developer community that spans sectors.

Most L2s, including Base, Arbitrum, and Optimism, still depend on Ethereum for settlement and data availability. This ensures ETH remains the underlying fuel, even if it’s less visible on the surface.

Is Ethereum worth investing in in 2025?

ETH may be underperforming, but that doesn’t necessarily mean it’s overvalued. From a technical perspective, ETH is approaching historically significant support zones. The RSI recently touched 25 before rebounding, a level that, in past cycles, has marked local bottoms.

If ETH maintains its base in the $1,450-$1,500 range and macro conditions improve, this could be an attractive entry point for long-term investors. Ethereum has recovered from similar periods in 2018, 2020, and 2022, each time emerging stronger.

In addition to the current holder growth and its dominant DeFi footprint, ETH appears more undervalued than obsolete.

Drifting, not sinking

Ethereum isn’t collapsing, but it is falling behind.

Its recent underperformance isn’t just a market anomaly. It reflects deeper issues: weakening on-chain engagement, diluted user experience via Layer-2s, competitive pressure from faster chains, and optics problems stemming from foundation-level actions.

Yet, Ethereum’s foundational role in DeFi and Web3 infrastructure is still unmatched. It continues to secure billions in value and serve as the decentralized economy’s settlement layer.

However, the longer it drifts without improving usability, transparency, and momentum, the harder it will be to defend its position as the second-largest digital asset.

ETH’s fall from dominance isn’t guaranteed. However, unless the network adapts faster, on-chain, in the markets, and investors sentiment, it may no longer be the chain that defines crypto’s next frontier.