Standard Chartered Cuts Ethereum (ETH) Price Target to $4,000, Citing Layer-2 Leakage

Standard Chartered released a report on Ethereum, reducing its price estimates of $10,000 to $4,000 for ETH. It cites Layer-2 leakage, such as with the Base blockchain developed by Coinbase

Standard Chartered has slashed its price estimates for Ethereum, reducing them from $10,000 to $4,000. This adjustment follows observations of "Layer-2 leakage," evident in the Base blockchain developed by Coinbase, where the platform retains 80% of its fee revenue.

In contrast, the Ethereum network receives a minimal share. Standard Chartered estimates that Base alone drains approximately $50 billion from Ethereum's market capitalization.

Ethereum investors will encounter less-than-positive estimates, arriving just in time for the digital token's 10th anniversary. The report describes Ethereum as undergoing a midlife crisis. The problem, with layer 2 draining funds, could worsen as the Converge blockchain is estimated to further exacerbate it.

Despite this downturn, Standard Chartered's prediction of $4,000 for ETH is still optimistic, representing a 100% profit from recent levels.

Standard Chartered introduces the term GDP to measure the value generated within the Ethereum network, likening it to a national economy. They use this concept to assess the network's efficiency and discover that many transactions are occurring off the main network, such as with blockchains like Base.

Many traders anticipate a lower price for ETH and may even see it fall below $1k if current trends continue. If Ethereum remains in the red for three months, it may signal a bear market. ETH experienced a 30% drop in February alone, leading many traders to liquidate their holdings.

In a February blog post, Buterin highlights the need to scale layer 1 on the Ethereum blockchain to enhance network value, considering the continued success of layer 2 innovations. He notes that expanding layer 1 gas capacity will make Ethereum more competitive in performance and cost-effectiveness.

Standard Chartered argues that layer 2 networks, initially designed to enhance scalability and decongest traffic, have downgraded the blockchain and reduced its effectiveness. The bank observes that the design flaws have diverted core economic value from the Ethereum ecosystem, ultimately impacting the token price negatively.

The bank predicts a sharp decline in the ETH/BTC ratio, reaching a similar level to 2017's 0.015 by the end of 2027. Ethereum may continue to lag behind Bitcoin, deterring future and current investors.

The Dencun upgrade, according to Standard Chartered, marks a pivotal moment for on-chain changes, with end users showing a preference for layer 2 networks like Base, leading to a dramatic shift in overall Ethereum usage. This change has affected Ethereum's earnings as the network receives a smaller share of fees, with most going to the layer 2 networks. Due to the nature of the Dencun upgrade, which allows layer 2 networks to keep most of the fees, Ethereum is left with a significant economic imbalance. To rectify this, Standard Chartered suggests introducing a tax system to recover funds from layer 2 fees.