Standard Chartered Cuts Ethereum Forecast 60% to $4,000 Due to Layer-2 Fee Imbalance

Standard Chartered has revised its price forecast for Ethereum, reducing its estimate from $10,000 to $4,000. The downgrade is attributed to the economic imbalance caused by Layer-2 fees, which are retained by networks like Base, developed by Coinbase, rather than enriching the Ethereum network. This situation is expected to worsen with the introduction of the Converge blockchain, further draining funds from Ethereum.

Ethereum is currently facing challenges in offering cheaper fees and faster transaction times, which has led to a lag in market price compared to Bitcoin. Despite the pessimistic outlook, a forecast of $4,000 for Ethereum represents a 100% profit from recent levels. Standard Chartered has introduced the concept of GDP to measure the value generated within the Ethereum network, highlighting that many transactions are occurring off the main network, such as with blockchains like Base.

Many traders predict a lower price for ETH, with some even suggesting a drop below $1,000 if current conditions persist. A prolonged period of decline in Ethereum's value could signal a bear market. In February, Ethereum's value dropped by around 30%, leading many traders to liquidate their holdings.

Vitalik Buterin, the co-founder of Ethereum, has argued that scaling Layer 1 on the Ethereum blockchain is necessary to enhance network value. He predicts that expanding Layer 1 gas capacity will make Ethereum more competitive in terms of performance and cost-effectiveness. However, Standard Chartered has argued that Layer 2 networks, initially designed to improve scalability and decongest traffic, have downgraded the blockchain and made it less effective. The bank's point is that the design flaws have taken away core economic value from the Ethereum ecosystem and negatively impacted the market price.

Standard Chartered further predicts that the ETH/BTC ratio will suffer a sharp drop, reaching a similar level to 2017 of 0.015 by the end of 2027. Ethereum may continue to perform poorly relative to Bitcoin, discouraging future and current investors. The Dencun upgrade, according to Standard Chartered, was a decisive moment for on-chain changes, with end users preferring Layer 2 networks like Base. This change negatively affected Ethereum’s earnings because, since most earnings come from block rewards, the network has a lower share of fees. The Dencun upgrade allowed Layer 2 networks to retain most of the fees, leaving Ethereum with a serious economic imbalance. According to Standard Chartered, the solution is to introduce a tax system that brings back money from Layer 2 fees.