Investor Fred Krueger criticizes Ethereum's high valuation, citing slowing on-chain transactions, declining daily active users, and regulatory uncertainty.
Another crypto enthusiast, Sarah Thompson, expresses concerns about Ethereum's current valuation, considering it overpriced at current market rates. Thompson argues that Ethereum proponents seem to be out of touch with reality, especially after the recent surge that pushed the native currency, ETH, above the $3,000 mark.
Thompson highlights several factors contributing to her skepticism, including a noticeable decline in on-chain activity, stiff competition from alternative blockchains like Solana and Avalanche, and the regulatory uncertainties casting a shadow of risk over holding Ethereum.
Ethereum Faces Speed and Usage Challenges
According to Thompson, Ethereum's on-chain transactions need to be faster and more cost-effective, especially in a landscape where scalable and low-fee alternatives are gaining traction. She contends that the current challenges faced by the Ethereum network don't justify the prevailing spot rates of around $3,000.
Beyond the scalability and throughput issues, Thompson also points out a significant drop in daily active users (DAUs) on the Ethereum mainnet. Since the peak in 2021, both Ethereum and altcoin prices have witnessed a decline, with active DAUs falling from approximately 120,000 to around 66,000 in February 2024.
While Ethereum supporters argue that developments like layer-2 platforms such as Arbitrum enhance security, Thompson notes that even major protocols with substantial total value locked (TVL) have experienced user losses. As an example, Uniswap V3, the latest version of one of Ethereum's largest decentralized exchanges, now reports around 16,000 daily active users, a significant drop from previous years.
Exploring Alternatives: Is ETH Priced Too High?
Thompson emphasizes the disparity between the declining DAUs, indicating reduced active usage, and Ethereum's increasing market capitalization and spot rates. She suggests that this situation has led Ethereum to resemble an inflated "meme coin like Shiba Inu," considering its high market cap.
According to Thompson's assessment, faster and more cost-effective alternatives such as Solana, Avalanche, and Near Protocol offer better value for specific use cases like decentralized finance (DeFi) and gaming.
Thompson also raises concerns about the lack of regulatory clarity surrounding Ethereum. Despite the recent approval of the first batch of spot Bitcoin exchange-traded funds (ETFs) by the United States Securities and Exchange Commission (SEC), Ethereum's classification remains uncertain. While the broader crypto community anticipates the approval of a spot Ethereum ETF, Thompson is less optimistic about its likelihood.
Only time will reveal the evolution of Ethereum and its market valuation in the coming months. Despite criticism, some supporters remain hopeful that increasing adoption and ETH's deflationary nature will drive prices back towards the highs of 2021, reaching $5,000.