Ethereum (ETH), the second-largest cryptocurrency by market capitalization, has been a key player in the crypto space for nearly a decade. Despite all, ETH has faced a sharp decline in 2025, with its price dropping about 46% in Q1. 

Alongside this, Ethereum’s transaction fees have fallen to their lowest level in over 4 years, signaling a major shift in network activity.

Ethereum’s Network Activity Drops

In a recent tweet post, Blockchain research firm IntoTheBlock says that Ethereum’s total transaction fees fell by nearly 60% in the first quarter of 2025, reaching $208 million by early April. This is the lowest amount since 2020. 

At the same time, Ethereum’s burn rate, which helps control supply, has slowed down. Fees from platforms like Uniswap, MetaMask, and Tether have dropped by over 95% since late 2024.

With fewer transactions on the main network, Ethereum’s inflation rate is rising. DeFi analyst Michael Nadeau warns that Ethereum’s inflation could soon be higher than Bitcoin’s.

Why a Sudden Drop?

One of the biggest reasons for the drop in fees is the rise of Layer-2 (L2) solutions. These networks work on top of Ethereum and help users make faster and cheaper transactions. Coinbase’s Base is leading the way, processing over 80 transactions per second, more than any other L2 network.

The Dencun upgrade, launched in March 2024, made L2 transactions even cheaper. Because of this, many users are avoiding Ethereum’s main network and choosing L2 alternatives. This shift has led to fewer transactions on the main network, causing fees to fall.

ETH/BTC Performance Drop to 5-Year Low

Ethereum isn’t just facing network issues; it’s also struggling against Bitcoin. Since early 2025, ETH’s performance has been weak, dropping from over $3,300 to $1,805 by April 4. Meanwhile, Bitcoin surged to $109,000 before dipping only 10%, while ETH fell 45%, pushing the ETH/BTC ratio to a five-year low.

ETH Still Eyes $5,000 Price Target

Despite the recent struggles, long-term investors remain optimistic. IntoTheBlock revealed that Ethereum whales accumulated over 130,000 ETH when the price dipped below $1,800, showing strong buy-the-dip sentiment.

Some analysts still believe ETH could reach $5,000 by the end of 2025, with even more bullish predictions suggesting a move above $10,000 in the future.

Additionally, the upcoming Pectra upgrade, expected in May, could provide Ethereum with a much-needed boost, potentially improving its network performance and long-term outlook.