Standard Chartered has lowered its 2025 price target for Etherum (ETH) from $10,000 to $4,000, citing the growing dominance of Layer 2 networks, particularly Base, as a key reason.
Analyst Geoffrey Kendrick argues that Ethereum's Layer 2 expansion has eroded its market cap and that without economic reforms, ETH may continue underperforming against Bitcoin.
Background
- Standard Chartered’s revised ETH forecast cuts its price target from $10,000 to $4,000, citing Ethereum’s evolving market dynamics.
- According to Geoffrey Kendrick, the bank’s global head of digital assets research, Ethereum has “commoditized itself” by enabling Layer 2 networks to extract significant value from the ecosystem.
- Kendrick estimates that Base, the Coinbase-incubated Layer 2, alone has removed $50 billion from Ethereum’s market cap by shifting activity away from the Layer 1 chain.
- Ethereum’s structural changes over recent years, including The Merge and Dencun upgrade, have empowered Layer 2s but reduced direct revenue to Ethereum’s mainnet.
- Base directs all its profits to Coinbase, creating "super-profits" for its corporate owner, further raising concerns about Ethereum’s value retention.
- While Ethereum still dominates the DeFi sector, stablecoins, and tokenized assets, its market share has been declining.
Why should you pay attention?
- Ethereum’s fee model is under scrutiny, as Layer 2s capture transaction activity without contributing directly to the Ethereum mainnet’s economic value.
- If Ethereum cannot adapt to the growing power of Layer 2s, its long-term revenue and sustainability could be at risk.
- Ethereum’s next major upgrade, Pectra (expected in 2025), may help address scalability and fees, but Kendrick warns that without economic restructuring, ETH may continue underperforming against BTC.
- Kendrick suggests that taxing Layer 2s, similar to how governments tax foreign mining firms, could be a solution—but he believes this is unlikely to happen.
- Despite the short-term downgrade, Standard Chartered still expects ETH to reach $7,500 by 2028-2029, though it predicts the ETH/BTC ratio will fall to its lowest level since 2017.
Who said what?
- Geoffrey Kendrick, Standard Chartered’s head of digital assets research, stated:
“We estimate that Base has removed $50 billion of market cap from Ethereum alone.”
- He also suggested a controversial potential fix:
“The solution would be to tax Layer 2 super-profits, similar to how governments charge super taxes for foreign-owned mining companies. Unless that happens, ETH-BTC will keep going down.”
- A Base spokesperson defended Layer 2 networks, arguing that they help Ethereum’s growth:
“Base makes getting onchain more accessible with fast and cheap transactions and helps grow the Ethereum ecosystem by onboarding more users, builders, apps, and assets.”
- Despite Ethereum’s struggles, Kendrick acknowledged its continued dominance in key areas:
“Ethereum still leads in tokenized real-world assets, where it holds an 80% market share.”
Zooming out
- Ethereum is at a crossroads, balancing the benefits of Layer 2 scalability with the risk of eroding its mainnet’s economic value.
- The dominance of Base and other Layer 2s raises questions about Ethereum’s long-term sustainability, as more activity moves off-chain while Ethereum bears the infrastructure costs.
- This debate extends beyond Ethereum, as other blockchain ecosystems may face similar challenges as they scale.The Ethereum Foundation could consider economic reforms, but major changes—such as taxing Layer 2 networks—would be controversial and difficult to implement.
- While Ethereum’s growth trajectory on-chain remains strong, the question now is whether its current model is sustainable—or if a structural shift is needed to maintain long-term value.
