By Ethan Carter Join on X
Standard Chartered revised their ETH price forecast to $4,000 after originally predicting $10,000 for the year 2025 thus triggering noticeable reactions from the cryptocurrency community. The bank performed a strong price reduction following the increasing dominance of Base and other Layer 2 scaling solutions, leading Ether main chain transactions toward these alternative blockchain protocols.
Geoffrey Kendrick in his report “Ethereum — Midlife Crisis” found that standard Chartered Research’s Global Head of Digital Assets points to Layer 2 networks as the main cause behind Ethereum’s price decline because of their success at profiting significantly from the Ethereum network.
The Role of Base and Layer 2 Solutions
Research from Geoffrey Kendrick shows that Base as the premier Layer 2 network on Ethereum led to an approximately $50 billion reduction in Ethereum’s market valuation. The Ethereum ecosystem appears commoditized because of how Base moves its transaction fees outside the main chain. Layer 2 technologies like Base enable Ethereum transaction fees to bypass the main chain, thus depriving Ethereum of significant value that normal ETH holders used to receive.
In his analysis, Kendrick identified Layer 2s with Base operating at the forefront as entities pulling excessive profits from the entire Ethereum system. The Layer 2 components that Ethereum has created have resulted in a self-created market through which more users shift their fees toward the Layer 2 framework rather than the main Ethereum chain.
If no reform measures are introduced to counter the Layer 2 advantage, then Ethereum may face a permanent market share reduction and decreased profitability for network operations.
The Underperformance of Ether
Ether faced a substantial price decrease when it lost more than 60% of its value, reaching $4,878 in November 2021 and settling at $1,900 in the market. Solid data shows that Ethereum has underperformed worse than the entire cryptocurrency market has in recent times. The underperformance of Ethereum stems from critical network revisions over the past years that Kendrick views as “value destructive.”
Among these changes:
- The Merge introduced proof-of-stake (PoS) consensus on Ethereum and eliminated its natural difference among smart contract platforms.
- The implementation of Layer 2 networks by Kendrick shows how this solution extracts value from the main chain of Ethereum.
- The recent Dencun update allowed Layer 2 networks to increase their profitability even more, which lowered Ethereum’s main chain value.
- Base benefits from data recording cost reductions, allowing Coinbase as its owner to direct all profits toward Coinbase operations, thus increasing the underlying problem.
Taxing Layer 2 Profits: Potential Solution?
Based on his suggestions to Ethereum, Kendrick proposes a tax system similar to government taxation of foreign mining companies that extracts excessive profits from their operations. According to Kendrick, this solution will appear unrealistic during the next few years, creating doubts about ETH’s future direction.
Without regulatory adjustments, Kendrick anticipates that the ETH/BTC metric will reduce steadily to its most minimal value from early 2017 until 2027. According to his projection, the ETH/BTC ratio will decrease to 0.015 by 2027 while representing its minimalest value from early 2017.
What Could Turn Ether Around?
Ethereum maintains its dominance in decentralized finance since it possesses more than half of decentralized finance assets’ total value locked (TVL), together with 57% of stablecoins and 80% of tokenized assets. The success of ETH depends on the implementation of several vital factors because its control over the network continues to decrease:
- The network could see increased demand because Ethereum is commanding in the Real-World Assets (RWAs) market.
- Future Pectra system updates during 2025 may enhance Ethereum’s transaction processing capabilities and payment fees, thus allowing Ethereum to regain some of its market segment share from Layer 2 solutions.
- The fee system reform and taxation of Layer 2 operations on Ethereum would deliver balance back to the network.
- The future of Ether remains unclear to Kendrick due to his doubt regarding the possible implementation of these features.
Looking Ahead: Ether’s Long-Term Outlook
Although Kendrick has adjusted his short-term Ether price prediction to $4,000 by 2025, he predicts positive potential for its extended forecast. Ether shows potential for growth in upcoming years because the evolving network leads him to believe it will reach $7,500 by 2028-2029. According to his predictions, Ethereum will maintain a lower market position than Bitcoin as ETH/BTC crosses a new historical low during the last decade of this century.
To recover from growing Layer 2 solutions and fee changes, Ethereum must develop new approaches within the next decade. Ethereum enthusiasts, along with investors, will determine in upcoming years if ETH should regain its previous position or if Bitcoin will keep its dominant role.
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