ETH's underperformance tied to current crypto market structure: Coinbase

Apart from declining network activity and token inflation, ether's recent underperformance compared to its peers likely stems from broader market factors following the deleveraging event in early August, according to an analyst at Coinbase.

"Ethereum ETH -0.35% ’s network activity and supply inflation are important factors to consider in its underperformance, but we also think the price action has been driven by the current market structure," Coinbase Global Head of Research David Duong said in a report.

Duong noted that many cryptocurrency investors are focused on altcoins and other positions that have become harder to exit, potentially trapping capital that would otherwise flow across the broader crypto ecosystem to networks such as Ethereum . "Crypto natives are driving the market at the moment, and this cohort may be crowded into altcoins and other crypto positions that are getting more difficult to exit. For Ethereum to catch up, we think it needs a new catalyst to help reignite both developer and investor enthusiasm," he added.

Duong said that a lack of new narratives for Ethereum and a limited supply of capital have increased the scrutiny around how the blockchain compares to other smart contract platforms.

Ethereum lags behind peers

Among the major cryptocurrencies, ether has notably lagged behind its peers, recently falling 1.6 standard deviations below its three-month average, according to Thursday's Coinbase report.

The report said that Total Value Locked (TVL) on Ethereum has dropped from $67 billion in June to $44 billion—levels last seen in mid-February. Duong emphasized that ether needs a spark to change its current trajectory, though both traditional and crypto markets remain relatively subdued.

He added that there remains potential for spot Ethereum exchange-traded funds (ETFs) to provide support but that institutional interest has so far been concentrated in the equivalent bitcoin-based products. "Indeed, we think many traditional players remain distanced from a better understanding of Ethereum’s supply schedule and smart contract utility," Duong said.