Is there a risk that Ethereum will suffer a decline again? To answer this question, we need to distinguish the Ethereum network from Ether (ETH), which is the native cryptocurrency.
The success of the Ethereum network
In fact, as far as the Ethereum network is concerned, from a technical point of view, it is really difficult to identify in its past a real period of decline in recent years.
On the contrary, after the bursting of the bubble at the end of 2017/beginning of 2018, in the long term, there has been a continuous growth of its use.
The only real big problem from this point of view are the average transaction costs, which have risen from $0.2 at the end of 2018 to the current $40, passing through a couple of peaks above $60. But, truth be told, this is not a sign of decline at all. On the contrary, it’s a sign of great network usage.
Ethereum price amidst declines and bull run
As far as the price of ETH is concerned, the situation is definitely different, since after the peak at over $1,000 in January 2018 it plummeted to $90 in December of the same year.
So the trend of the ETH price has already witnessed a real decline in the past.
Two different scenarios must also be described with regard to the future.
The risk of a decline on the ETH price similar to that of 2018 for example is there, but it does not seem particularly likely.
One has to keep in mind that this parabola actually started more or less in mid-2017 when the price was below $50.
During a first phase, that of the bull run followed then by the speculative bubble, the price increased by as much as 20 times, making it almost inevitable that the bubble would burst. However, when the bubble burst, the price was back to just under 400$, and seemed able to recover. The problem is that the bear market was not over, and a new decline was triggered that brought the price back below $100.
This time things went differently.
The starting price was just under 400$, at the end of 2020, and the maximum price was under $5,000. In other words, the increase was just over 10 times, or proportionally just over half of 2018.
Now the price has already fallen below $3,000, and a possible further decline is not at all unimaginable. But if it were to return to July 2021 levels it would fall just below $2,000, which is far from the $400 of late 2020.
Competition threatening Ethereum
As far as the Ethereum network is concerned, instead, the discourse is completely different.
If on the one hand, a real decline seems really unlikely today, on the other hand, however, competitors are becoming increasingly fierce, driven mainly by extremely lower fees.
At this moment no alternative network is able to really challenge the primacy of Ethereum, but in the long run, if the problems related to transaction costs are not solved it’s possible that some cheaper competitor will corrode a part of Ethereum’s market share.
Currently, this seems more of a theoretical than realistic scenario, but the crypto sector is very volatile and changeable, so it is not possible to exclude it a priori.
For this reason, it is necessary to consider likely sooner or later a new period of decline, such as a new bear market, but in the long run, bear markets tend to be followed by bull runs, and vice versa.
What really matters, over the long term, is not whether or not periods of decline occur, but whether or not these are followed by periods of growth.