On-chain activity is exploding, but Ethereum can't seem to gain momentum? Experts reveal the "fatal weakness": could drop to $1,500

On-chain data analytics firm CryptoQuant has issued a warning in its latest report, indicating that Ethereum is facing a severe “Adoption Paradox” — a divergence where network usage hits new highs, ecosystem activity continues to grow, but the token price remains sluggish. Analysts believe this could lead to downside risks for ETH.

CryptoQuant Research Director Julio Moreno stated that if the bear market persists and market conditions do not improve, by the end of Q3 and early Q4 this year, ETH could drop to around $1,500.

CryptoQuant data shows that Ethereum’s “Daily Active Addresses” hit a record high last month, even surpassing peak levels seen during the 2021 bull market. However, this active on-chain activity has not translated into a price rally, with ETH falling over 50% from its all-time high of $4,946.05 set in August last year. This breaks the traditional market pattern where higher network activity correlates with stronger price performance.

This divergence is not limited to user growth alone. CryptoQuant pointed out that, as DeFi, stablecoins, and Layer 2 solutions flourish within the Ethereum ecosystem, activity driven by smart contracts and automated protocols has also surged. Last month, Ethereum’s “Internal Contract Calls” — which refer to automated contract-triggered transactions within DApps — also reached a new high. CryptoQuant notes:

The historical correlation between smart contract activity and ETH price is gradually breaking down. In previous market cycles, ETH’s price and on-chain contract-driven activity showed a strong “positive correlation”: more transfers and interactions meant a stronger price rally.

In light of this decoupling between fundamentals and price, CryptoQuant believes that compared to monitoring network activity, “Exchange Inflows” — the amount of ETH moving from wallets into exchanges — now provides a more accurate reflection of ETH’s price dynamics. This indicator directly captures capital flow toward potential sell-off channels (i.e., exchanges). CryptoQuant points out:

Compared to Bitcoin, the proportion of ETH inflows into exchanges is significantly higher. This suggests ETH is facing relatively heavier selling pressure, which helps explain why its recent performance has lagged behind Bitcoin.

Additionally, weak investment demand remains a major concern. CryptoQuant observed that a key indicator tracking net capital inflows or outflows — the one-year change rate of ETH’s “Realized Market Value” — has recently turned negative. This shift indicates that, despite ongoing on-chain activity, ETH continues to lose capital.

Julio Moreno emphasizes: “To truly break free from the bear market gloom, we need to see positive net capital inflows, and the amount of ETH flowing into exchanges must decrease.”