Is Ethereum Still a Good Investment?

Is Ethereum’s native cryptocurrency, Ether (ETH), still a solid investment in 2024 and the coming years? This article aims to cut through the noise and skip the usual praise for Ethereum’s innovation and community enthusiasm. Instead, we’ll dive into the data—examining Ethereum’s recent network statistics, fund flows, and similar key market trends to determine whether or not one should buy Ether in the coming days.

Let’s explore the hard numbers to see whether Ethereum is still a smart bet for the future.

Ethereum Gas Fees Dipping to Lowest Level is Concerning

On Aug. 17, Ethereum’s daily average gas price dropped to a record low of just 2.9 Gwei, and the average transaction fees in the U.S. dollar terms have also fallen to a multi-year low of $0.85.

Ethereum gas fees (mean) chart. Source: CryptoQuantAs a result, the number of Ethereum burned each day decreased significantly, with only 115 ETH burned on Aug. 18, the lowest ever. That is because Ethereum burns some of its gas fees following its 2022 London Hard Fork.

Despite these lower costs, the number of daily transactions on Ethereum has remained steady or even increased compared to the same period over the past two years.

This fee drop is likely linked to the Dencun upgrade, which went live on March 13, 2024. The upgrade introduced a new transaction type called ‘Blobs,’ allowing Layer 2 networks like Arbitrum (ARB), Base (BASE), and Optimism (OP) to post their data on Ethereum at much lower costs, potentially reducing fees by up to 100%.

While lower fees are great for users, they might pose challenges for investors. A lot of Ethereum’s activity is moving to these Layer 2 networks, which could lead to fragmentation of users and liquidity, potentially weakening the Ethereum network.

For instance, even with the approval of Ethereum ETFs, the price of ETH has struggled since the Dencun upgrade. The supply of ETH has increased by over 197,000 ETH (about $500 million), while its price has dropped by 35%.

The Dencun upgrade’s potential impact on Ethereum’s market performance and long-term sustainability raises significant concerns. As lower network usage leads to a reduced token burn rate, the circulating supply of Ether could increase, making it less appealing as an investment compared to scarcer assets like Bitcoin (BTC).

From a supply-demand perspective, this dynamic could position Ether as a riskier bet than other cryptocurrencies in 2024 and beyond, potentially undermining its attractiveness to investors seeking deflationary assets.

Solana is Eating Ethereum’s Market Share

Further downside cues for Ethereum come from its top layer-1 blockchain rival, Solana (SOL). Solana has severely outperformed Ether in recent months compared to the broader crypto market.

For instance, Solana’s market dominance increased to 3.26% in August 2024 from its low of 0.48% in December 2022. In comparison, Ether’s crypto market dominance has decreased from 19.33% to 15.24% in the same period.

One of the most significant reasons behind Solana’s outperformance is its speed. Solana can handle an average of 1,504 transactions per second (TPS), making it approximately 46 times faster than Ethereum, which manages only around 22.7 TPS. Even when combining Ethereum’s Layer-2 scaling solutions, the network’s total processing speed is about 500 TPS, still lagging behind Solana.​

Solana offers lower transaction fees than Ethereum. This cost-effectiveness has attracted developers and users alike, particularly for applications requiring frequent transactions, such as decentralized finance (DeFi) and non-fungible tokens (NFTs).

As of Aug. 14, Solana’s DEX volume was higher than Ethereum’s, for instance.

As a result, even from a competition perspective, Ether appears as an inferior investment bet.

Ethereum Whale Data: Are Ether’s Richest Investors Buying or Selling ETH?

Ethereum’s richest address cohorts, holding between 1,000 ETH and 10 million ETH, have sold Ether in 2024, barring those with a balance of 10 million—100 million ETH.

The chart suggests a redistribution of Ethereum from mid to large-sized holders (10,000 – 1,000,000 ETH) to the largest wallets (1,000,000 – 10,000,000 ETH), consolidating Ethereum holdings among the largest investors.

Interstingly, these larger wallets might be Ethereum’s staking addresses belonging to its core team or third-party Ether staking services, like Lido. If these larger wallets continue accumulating, it could lead to a more centralized distribution of Ether, potentially increasing market control.

On the other hand, the decline in holdings by mid-sized wallets might reflect profit-taking, as further evidenced by data showing nearly 70% of Ether investors in profits as of August 2024. This typically precedes major ETH price corrections, as shown below.

Some investors may have also transferred their ETH holdings to staking addresses to earn annual yields.

Overall, Ether’s richest investors have shown strong distribution sentiment in recent months, which may limit its upside in 2024 and beyond.

Ethereum Fundamentals: ETF Launch, Mainstream Adoption on Focus

In July, the U.S. Securities and Exchange Commission (SEC) approved multiple spot Ether exchange-traded funds (ETF) for the first time, raising hopes that it would open a floodgate of institutional investments into the Ethereum market.

The same thing happened. However, inflows into these ETFs have not been as smooth as expected since they went live for trading on July 23 with seed capital of $10.25 billion. As of Aug. 20, over $434 million have flown out of these funds, with only one ETF to blame for the overall negative results.

That is Grayscale Ethereum Trust (ETHE), which has witnessed $2.43 billion in outflows since July 23, primarily due to its higher fee. Other funds have, more or less, witnessed substantial inflows in the same period.

The ETHE fund still has about $7 billion under management, which may keep Ether ETFs net flows in negative territory in the coming months.

On a brighter note, Ethereum may witness an adoption from one of its native projects, the USD Coin (USDC) stablecoin. Interestingly, the company behind the stablecoin, Circle, has announced its intention to launch a tap-to-pay feature across all Apple devices.

Ether’s market prospects look bullish due to supportive macroeconomic catalysts, namely the potential interest rate cut by the U.S. Federal Reserve in September. Lower interest rates have proven to be bullish for cryptocurrencies since the pandemic.

Ethereum Technical Analysis: Bulls and Bears Are Fighting For Dominance

From a technical viewpoint, Ether’s price appears trapped inside a range defined by its 50-week (red) and 200-week (blue) exponential moving averages (blue), coinciding with $2,800 and $2,000 levels, respectively.

Interestingly, the 50-week EMA aligns with the lower trendline of Ether’s multi-year ascending triangle pattern, creating a support confluence. It technically increases ETH’s ability to withstand any bearish pressure in the coming weeks, thus boosting its potential to break above the 200-week EMA resistance and eye the Fibonacci levels shown in the chart above as the next upside targets ($2,872, $3,294, and so on).

The weekly relative strength index (RSI) displayed at the top of the chart shows that Ethereum is currently in neutral to slightly oversold territory, with a reading of around 40.28. This suggests that while the market is not yet oversold, it is close, implying that a bounce or consolidation might occur if the trendline support holds.

Is Ether Still a Good Investment?

The investment potential of Ethereum’s native cryptocurrency, Ether, in 2024 faces several challenges. Concerns have emerged over Ethereum’s decreasing gas fees, increased market competition from Solana, and recent whale activity suggesting a redistribution of ETH holdings.

Additionally, mixed results from Ether ETFs and the potential for mainstream adoption via the USDC stablecoin add complexity to the outlook. Technical analysis indicates a tug-of-war between bulls and bears, with key levels to watch in the coming weeks that could influence Ethereum’s price trajectory.