"Layer-2 Growth Leaves ETH's Value Capture in Question"

Citigroup has issued a revised Ethereum (ETH) price forecast, projecting the cryptocurrency could reach $4,300 by the end of 2025 under a base-case scenario. This target sits below ETH’s current market price of approximately $4,500 and reflects the bank’s cautious stance, emphasizing the challenges of valuing a digital asset influenced by both technological innovation and speculative market dynamics. The forecast, however, is bracketed by a wide range of outcomes: a bearish case of $2,200 and a bullish case of $6,400, underscoring the significant uncertainty surrounding Ethereum’s future trajectory.

Citi’s analysis is rooted in the evolving role of layer-2 scaling solutions, which have become central to Ethereum’s ecosystem. The bank estimates that only 30% of the activity occurring on these layer-2 networks—such as rollups and sidechains—directly translates into value for the Ethereum base layer. This disparity highlights a key risk in assessing ETH’s valuation: while layer-2 networks boost scalability and reduce transaction costs, their success does not always translate into proportional gains for Ethereum’s native token. This dynamic creates a challenge for investors seeking to correlate network usage with price performance.

The introduction of Ethereum-focused exchange-traded funds (ETFs) has added another layer of complexity. Citigroup acknowledges that these products have driven some inflows into ETH, although their impact remains less pronounced compared to Bitcoin due to Ethereum’s smaller market capitalization and lower visibility among new investors. The bank also notes that macroeconomic conditions, including the S&P 500 approaching its target level of 6,600, limit the broader upside for risk assets, which could constrain ETH’s performance in a general market slowdown.

Citigroup’s forecast contrasts with more optimistic projections from some of its peers. Standard Chartered, for instance, has raised its year-end target for ETH to $7,500, projecting a potential rise to $25,000 by 2028 under favorable conditions. Fundstrat, another major player, has also suggested a bullish scenario where Ethereum could trade between $10,000 and $15,000 by the end of 2025, driven by tokenization and institutional inflows. These varying forecasts illustrate the divergent views within the institutional investment community and underscore the speculative nature of Ethereum’s valuation.

The role of layer-2 networks continues to be a focal point in Ethereum’s development and growth. These solutions, including Optimism, Arbitrum, and Coinbase’s BASE, have enhanced the network’s scalability and reduced transaction costs. For instance, BASE has already seen significant traction, surpassing Ethereum and other layer-2s in daily transactions within a month of its launch. However, the long-term value capture from these networks remains uncertain, as much of their activity does not directly accrue to ETH. Citigroup’s 30% valuation assumption reflects this cautious outlook, indicating that ETH’s current price may be overextended relative to its underlying fundamentals.

Ultimately, Citigroup’s forecast highlights the ongoing debate around Ethereum’s valuation and the role of its ecosystem in driving value. While the bank remains skeptical about the extent to which layer-2 activity benefits ETH, it acknowledges the potential for stronger adoption and institutional participation to push the price higher. The wide range of outcomes in Citi’s model reflects the inherent risks and opportunities in the evolving cryptocurrency market, as investors continue to navigate a landscape shaped by technological innovation, regulatory developments, and shifting macroeconomic conditions.