VC: Ether "Died By Its Own Hand" As L2s Drain Value From Network

• Ethereum‘s investment appeal is declining as layer-2 networks drain value from the main blockchain while token creation increases unchecked.
• The ETH/BTC ratio has fallen to a five-year low of 0.02260, with ETH trading at $1,894 and down 5.34% over seven days.
• Despite bearish sentiment, including Standard Chartered’s revision of 2025 price targets from $10,000 to $4,000, some traders remain optimistic about Ethereum’s potential. Ethereum’s investment case is deteriorating as layer-2 networks siphon value from the main blockchain and excessive token creation goes unchallenged, according to venture capital experts. With ethereum’s price sliding and its performance against Bitcoin reaching multi-year lows, investors are questioning its long-term value proposition despite its continued utility as a network.

Nic Carter, partner at Castle Island Ventures, pointed to greedy Ethereum layer-2 solutions as the primary culprit behind Ethereum’s waning investment appeal. "The #1 cause of this is greedy Eth L2s siphoning value from the L1 and the social consensus that excess token creation was A-OK," he stated on X on March 28.

Carter’s comments came in response to Quinn Thompson, founder of Lekker Capital, who declared Ethereum "completely dead" as an investment. Thompson emphasized that while Ethereum maintains utility as a network, its $225 billion market cap cannot be justified amid declining transaction activity, user growth, and fee revenues.

Market data supports these concerns. The ETH/BTC ratio, a key indicator of Ethereum’s strength relative to Bitcoin, has dropped to 0.02260—its lowest level in nearly five years, according to TradingView data. At publication time, Ethereum traded at $1,894, showing a 5.34% decline over the past week and a more substantial 17.94% drop over 30 days, according to CoinMarketCap.

The current situation follows reports from September 2024 that Ethereum fee revenue had collapsed by 99% over six months, with layer-2 networks absorbing users and transactions while contributing minimally to the base layer. Adam Cochran of Cinneamhain Ventures suggested at that time that Based Rollups could potentially address this issue by restructuring incentives to benefit Ethereum’s base layer.

Institutional sentiment has also shifted. Standard Chartered revised its end-of-2025 Ethereum price estimate from $10,000 to $4,000 in a March 17 client letter, representing a 60% reduction from previous forecasts. This adjustment came despite earlier optimism that followed Ethereum’s climb to $4,000 in December, which coincided with Bitcoin’s milestone of reaching $100,000.

Not all market participants share this pessimism. Crypto traders including pseudonymous analysts Doctor Profit and Merlijn The Trader remain "insanely bullish," arguing that Ethereum could represent the "best opportunity in the market" despite its recent underperformance.

The divergent perspectives highlight the uncertainty surrounding Ethereum’s future as it navigates challenges of value extraction by layer-2 networks and questions about its tokenomics model.

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