The surprising ETH price drop below $2.5K raises questions about the fundamentals of Ethereum

Ether (ETH) prices fell by 9.6% from October 20 to October 23, with a strong rejection at the $2,700 level. This move erased the gains of the previous 10 days, and while Ether is now stable around $2,500, its 30-day performance is negative, down 6%.

ETH's chances of regaining the $2,800 support are diminishing and onchain data indicates that high transaction fees are pushing activity away from the Ethereum network, ultimately reducing demand for natives.

Ether's recent decline can be attributed to a 5% drop in the entire cryptocurrency market capitalization in the two days ending on October 23. However, the broader index is still up 1.9% over the past 30 days, indicating that ETH has underperformed. 8% of the market during this period. This underperformance helps explain the lack of optimism among Ether investors.

Congestion of the Ethereum network and the lack of a clear solution

While Ethereum's average transaction fee of $4 over the past two weeks may indicate strong onchain activity, it reinforces demand for competing blockchains that offer low-cost services. This issue is less important for large investors or whales involved in arbitrage, but it does significantly limit some smaller use cases.

According to Defilama, the Solana network recorded a volume of 13.4 billion dollars in the last seven days, which is 67% higher than Ethereum's activity in the same period. Before October, the gap widened significantly as the two networks were roughly equivalent in size.

More importantly, Ethereum's decentralized exchange (DEX) volume fell 13% in the seven days to October 23, even as the broader market rallied. Both Uniswap and Curve Finance's activity on the Ethereum network decreased by 18% during this period. In contrast, Solana Radium saw a 42 percent increase in volume, while Lifinity's activity was up 77 percent from last week.

Ethereum's performance in terms of Total Value Locked (TVL) disappointed investors, with TVL reaching 18.2 million ETH, a 5% decrease compared to a month ago.

A reduced number of deposits is generally considered a negative for ETH supply and demand volatility. This is especially relevant when validators withdraw Ether from staking, which is exactly what happened. According to Staking Rewards data, the Ethereum network saw a net drop of 191,000 ETH in the 30 days ending October 23, which is worth $492 million at current prices.

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From an onchain perspective, Ethereum is losing ground to competing networks. Solana TVL increased by 12% in SOL (SOL) terms, while deposits on BNB Chain (BNB) were stable over the past 30 days. Another factor contributing to investors' disappointment in Ether's price outlook is the uncertainty surrounding the Prague-Electra reform.

Initially expected in the first quarter of 2025, the Prague-Electra update will focus on incremental improvements, including the introduction of Verkle Trees to reduce node storage and EIP-7251 to increase authentication efficiency. However, concerns remain about potential delays and whether these changes will adequately address network congestion issues, which remain a key issue for Ether's long-term growth prospects.

This article is not intended for general information purposes and should not be construed as legal or investment advice. The views, ideas and opinions expressed herein are solely those of the author and do not necessarily represent the views and opinions of Cointelegraph.