Will Ethereum Never Recover? An Analysis of ETH's Future and the Rise of Bitcoin DeFi

The current situation of Ethereum has raised questions among many investors and observers about whether the second-largest cryptocurrency after Bitcoin can maintain its market position or whether we might be witnessing a paradigm shift in the crypto market. The rise of Bitcoin in the DeFi sector, in particular, could fundamentally reshape the landscape of decentralized finance.

Ethereum's Current Crisis

Ethereum is undergoing a challenging phase marked by significant price declines and diminishing market dominance. The ETH price has come under substantial pressure in recent months, recording a 13% drop between March 8 and 11, 2025. To reclaim the $2,500 level, Ethereum would need to rise by 29% from its current price of $1,940. The situation has worsened since then: ETH has fallen to a low of $1,645, its lowest level since October, representing a decline of over 60% compared to its all-time high in December of last year.

Particularly alarming is the declining Ethereum-Bitcoin ratio (ETH/BTC), which dropped to 0.022 in April 2025—a steep fall from its 2022 peak. Ethereum has lost over 70% of its value against Bitcoin during this period, underscoring its relative weakness compared to the leading cryptocurrency.

Experts cite several reasons for this downturn:

Declining Profitability Post-Dencun Upgrade

A central issue is the reduced profitability of the Ethereum network following the Dencun upgrade. A leading crypto analyst has grown increasingly skeptical, arguing that Layer-2 solutions only contribute to a deflationary ETH environment if both the blob and regular fee markets are saturated. However, since Layer-2 solutions largely operate independently and aim to avoid high fees, the anticipated deflationary dynamics are being hindered.

Shrinking DeFi Market Share

While Ethereum controlled over 61% of the DeFi market in early 2024, this share has dwindled to just 52.5% by April 2025. Competitors like Solana are gaining market share, with more projects and users migrating to newer, faster, and cheaper networks.

Macroeconomic Factors

Crypto analyst Benjamin Cowen compares the current situation to the 2019 market but notes a key difference: the absence of monetary policy changes. While the last cycle saw monetary policy shifts precede the halving, the Federal Reserve's tightening measures have only slowed this time, delaying the recovery process.

The Competitive Landscape: Alternative Blockchain Platforms

Ethereum has dominated the blockchain space for years, but numerous competitors are vying for market share. These "Ethereum killers" fall into two main categories:

EVM-Compatible Networks

These networks largely use the same technologies as Ethereum or are even compatible with it while offering additional features. Examples include Solana, Binance Smart Chain, Polygon, Tron, Toncoin, Cardano, Avalanche, and NEAR.

EVM-Equivalent Networks

These networks are built on new technologies, making them largely incompatible with Ethereum, yet they provide equivalent functionality. This category includes Sui, Aptos, Sei, Kaspa, Stellar, Filecoin, and Hedera.

Each platform adopts unique approaches to overcome Ethereum's limitations. Solana, for instance, is renowned for its high throughput, utilizing a unique Proof of History (PoH) consensus mechanism combined with Proof of Stake (PoS) to enable thousands of transactions per second. Avalanche offers a highly flexible platform with its Avalanche consensus protocol, enabling sub-second transaction finality.

However, these competitors face their own challenges. Solana struggles with network stability and centralization, while Avalanche contends with decentralization issues and network congestion at scale.

Bitcoin DeFi: The New Star in DeFi's Sky

As Ethereum faces challenges, Bitcoin is gaining traction in the DeFi sector. The integration of decentralized finance solutions into the Bitcoin blockchain has accelerated significantly in recent months.

Impressive Growth

The numbers speak for themselves: The value locked in Bitcoin-based DeFi projects surged by over 2,700% in the past year, reaching a total of $8.6 billion. By March 2025, Bitcoin's DeFi TVL (Total Value Locked) exceeded $5.7 billion, showing a sharp increase since late 2024. Although this figure remains modest compared to Ethereum's $46 billion DeFi TVL, Bitcoin is already the third-largest blockchain network for DeFi activity after Ethereum and Solana.

Innovative Projects

Several projects are driving this growth. The launch of the Runes protocol following Bitcoin's April 2024 halving marked a significant milestone. As Bitcoin's first fungible token standard, Runes unlocks new opportunities for Bitcoin holders to earn yields through lending, liquidity provision, and other DeFi mechanisms.

Other innovative projects like Babylon and Hermetica are fueling demand for Bitcoin-based DeFi solutions. Babylon pioneered Bitcoin staking, allowing investors to generate passive income from their holdings. Hermetica introduced USDh, the first Bitcoin-backed synthetic dollar, offering investors a 25% yield.

BTCfi: A New Era for Bitcoin

BTCfi (Bitcoin DeFi) expands Bitcoin's role beyond a pure store of value. Users can now leverage Bitcoin for decentralized lending, borrowing, staking, and trading. This combines Bitcoin's unparalleled security with the flexibility of DeFi applications.

Bitcoin now accounts for over 6% of the global DeFi market, a share that could grow further through Layer-2 solutions like BitVMX, which aims to equip Bitcoin with Ethereum-like functionalities.

Future Outlook: Will Ethereum Retain Its Dominance?

The question of whether Ethereum will maintain its leadership in DeFi or whether other cryptocurrencies—particularly Bitcoin—could assume this role is complex and hinges on multiple factors.

Ethereum's Strengths

Despite current challenges, Ethereum retains significant advantages. Its Layer-2 network growth is remarkable: Activity in Ethereum's Layer-2 ecosystem has surged by 97% since late 2021. Ethereum has also solidified its position as the second-most popular choice for institutional investors in traditional finance, supported by $8.9 billion in exchange-traded funds (ETFs).

Fundamental Differences Between Bitcoin and Ethereum

Assessing future prospects requires understanding the core distinctions between Bitcoin and Ethereum. Bitcoin primarily serves as a store of value, while Ethereum is a platform for decentralized applications and smart contracts. These differing orientations are reflected in their technological approaches: Bitcoin uses Proof of Work, whereas Ethereum has transitioned to Proof of Stake.

Future Scenarios

Based on current developments, several scenarios emerge:

1. Ethereum Recovers and Retains Dominance: Despite ongoing difficulties, Ethereum could reclaim its DeFi leadership through technological improvements and its established developer community.
2. Multi-Chain Future: Increasing specialization among blockchains is likely, with Bitcoin strengthening in value-oriented DeFi applications while Ethereum and others focus on complex smart contracts.
3. Bitcoin Takes the DeFi Lead: With Bitcoin DeFi's rapid growth and expanding Layer-2 solutions, the oldest cryptocurrency could overtake Ethereum in specific DeFi segments.

Conclusion

Ethereum's current crisis and Bitcoin's rise in DeFi signal significant shifts in the crypto landscape. While Ethereum faces serious challenges, predicting its long-term decline would be premature. Crypto markets are historically volatile and prone to unexpected turns.

Simultaneously, Bitcoin is evolving beyond its traditional role as digital gold, unlocking new use cases in DeFi. This development could recalibrate power dynamics in the crypto market, especially as adoption of Bitcoin-based DeFi solutions grows.

One certainty is that competition among blockchain platforms drives innovation and improvements, ultimately benefiting users. The future of crypto will likely be more diverse than the past, with specialized solutions for different use cases and deeper integration across blockchain ecosystems.