Citigroup Predicts 5% Ethereum Decline by Year-End

Citigroup has updated its forecast for Ethereum, predicting that under a baseline scenario, the cryptocurrency will decline to $4,300 by the end of the year, down from its current price of $4,515. This forecast is part of a broader analysis that considers various market conditions, including bullish and bearish scenarios. In a bullish scenario, Ethereum could rise to $6,400, while in a bearish scenario, it could drop to $2,200.

Analysts at Citigroup highlight that network activity remains a crucial factor in determining Ethereum's value. However, recent growth has primarily occurred on layer-2 networks, and it is unclear how much of this value is transmitted back to the Ethereum mainnet. In blockchain terminology, layer 1 refers to the foundational infrastructure (mainnet), while layer 2 refers to off-chain systems or independent blockchains built on top of layer 1. Citigroup estimates that only 30% of layer-2 activity contributes to Ethereum's value, suggesting that the current price is higher than its activity-based model would suggest. This discrepancy is likely due to strong capital inflows and enthusiasm surrounding tokenization and stablecoins.

Citigroup notes that while Ethereum ETF inflows are smaller in scale compared to Bitcoin, the price impact per unit of capital is greater. However, given Ethereum's smaller market capitalization and lower recognition among new investors, Citigroup expects ETF inflows to remain limited. This limited inflow is expected to have a more muted impact on Ethereum's price compared to Bitcoin, despite the higher price impact per unit of capital.

Citigroup analysts believe that macroeconomic support for Ethereum is limited. Additionally, with the S&P 500 index nearing Citigroup's target of 6,600 points, analysts do not anticipate significant gains in risk assets. This macroeconomic outlook suggests that Ethereum's price movements may be more influenced by internal factors, such as network activity and capital inflows, rather than broader market trends. The limited macroeconomic support and the nearing of the S&P 500 target point to a cautious outlook for risk assets, including Ethereum.