Ether (ETH), the native cryptocurrency of the Ethereum network, experienced a sharp decline of over 5% in a single day, dropping below the $2,600 mark. This performance significantly undercut that of Bitcoin, which saw a more moderate 2.9% decrease to around $95,700 during the same period. The broader digital asset market felt the pressure, with the CoinDesk 20 Index falling nearly 4%.
This market-wide downturn coincides with growing unease in traditional equity markets. Recent announcements from U.S. President Donald Trump regarding plans to implement reciprocal tariffs have escalated fears of a potential trade war, creating a risk-off environment that has spilled over into crypto assets.
While these macro factors provide context, several Ethereum-specific developments are applying additional downward pressure on ETH's price. Key among them is a fundamental shift in its token supply dynamics.
Understanding the Shift in Ethereum’s Supply Dynamics
A primary factor influencing Ether's price is a notable reversal in its supply trajectory. For months following the Ethereum Merge—the network’s landmark transition to a Proof-of-Stake (PoS) consensus mechanism—the circulating supply of ETH consistently decreased. This deflationary effect was a key bullish narrative for investors.
However, this trend began to reverse in April, several weeks after the activation of the highly anticipated "Dencun" upgrade. This upgrade was designed to improve network scalability and efficiency, particularly for Layer-2 networks.
The Impact of the Dencun Upgrade
The Dencun upgrade introduced "blob" transactions, which significantly reduced data fees for Layer-2 networks. While this successfully made transactions faster and cheaper across the ecosystem, it had an unintended consequence on ETH's economics.
With lower transaction fees, the amount of Ether being burned—permanently removed from circulation—also decreased. This burning mechanism was established by EIP-1559 in 2021, which instituted a base fee that is destroyed in every transaction. The reduction in burned Ether has led to a net expansion of supply. Data from Ultrasound.money shows that Ethereum's circulating supply has now grown by over 8,242 ETH since the Merge, moving past its pre-Merge levels.
Regulatory Delays and Competitive Pressures
Beyond supply issues, regulatory developments are also weighing on market sentiment. The U.S. Securities and Exchange Commission (SEC) recently delayed its decision on approving options contracts for BlackRock’s iShares Ethereum Trust (ETHA). Such delays create uncertainty for institutional investors, potentially slowing down capital inflows.
Furthermore, Ethereum faces intensifying competition from other smart contract platforms. Networks like Solana have gained significant market share in areas such as decentralized finance (DeFi) and non-fungible tokens (NFTs), challenging Ethereum's dominance. Analysts at JPMorgan have noted that ETH currently lacks a compelling catalyst or narrative compared to Bitcoin, contributing to its relative underperformance. This is evidenced by ETH's value relative to BTC recently hitting lows not seen since 2021.
Other factors, including reported regulatory scrutiny of the Ethereum Foundation, have added to the cloud of uncertainty surrounding the asset.
Is a Price Rebound on the Horizon?
Despite the bearish short-term performance, some market analysts see potential for a rebound. They point to historical patterns where similar price action was followed by renewed bullish momentum.
On Friday, Jake Ostrovskis, an OTC trader at crypto market maker Wintermute, noted observing "strong over-the-counter demand for ETH," suggesting underlying buying interest from large institutions even as the public market price fell.
Analysts at Santiment provided additional context, highlighting a social media sentiment shift. They noted a drop in the amount of ETH tokens held at a profit since they were first mined, which is often a sign of widespread fear and capitulation. Historically, such extreme bearish sentiment can create a potential setup for a surprise bounce "once crypto markets are able to stabilize." For those tracking these metrics in real-time, 👉 view real-time on-chain analytics tools can provide deeper insight into these market dynamics.
This combination of negative sentiment and strong underlying demand can sometimes mark a local bottom, setting the stage for a price recovery when broader market conditions improve.
Frequently Asked Questions
Why did the price of Ethereum drop suddenly?
Ethereum's price dropped due to a combination of broader market fears over potential trade wars and Ethereum-specific factors. These include a growing circulating supply caused by reduced fee burning after the Dencun upgrade, regulatory delays for ETH ETF options, and heightened competition from other blockchains.
What is the Dencun upgrade and how did it affect ETH supply?
The Dencun upgrade was a major network update designed to lower transaction fees for Layer-2 networks. While it achieved this goal, the subsequent reduction in transaction fees meant less ETH was burned (destroyed) in each transaction. This reduction in the burn rate reversed the previously deflationary supply trend, leading to a net increase in the number of ETH in circulation.
What does "supply growth" mean for Ethereum investors?
Supply growth means new ETH is being issued at a rate faster than it is being burned, leading to a gradual increase in the total number of coins available. This can create downward pressure on price through simple supply and demand dynamics, especially if demand does not keep pace with the increasing supply.
Are analysts optimistic about Ethereum's future price?
Some analysts see the current pessimism and price drop as a potential setup for a rebound. They point to strong institutional OTC buying interest and historical patterns where extreme bearish sentiment often precedes a market bounce. However, this is contingent on broader crypto market stabilization.
How does competition from Solana affect Ethereum?
Competition from Solana and other networks challenges Ethereum's market share in key areas like DeFi and NFTs. If developers and users migrate activity to these competing chains, it can reduce network activity on Ethereum, subsequently lowering transaction fees and the amount of ETH burned, further impacting its economic model.
What was the significance of the SEC delaying its decision on ETH options?
The SEC's delay in approving options for a spot ETH ETF creates uncertainty for institutional investors. Options are a critical financial instrument for risk management and sophisticated trading strategies. The delay postpones the arrival of these tools, potentially tempering institutional demand in the short term.