Despite ETH’s tough start to the year, historical data points to bullish trends in February and March. Innovations in Ethereum's layer 2 ecosystem, like "based" and "native" rollups, could enhance decentralization and network unity, while Paradigm is advocating for faster protocol upgrades to address market demands. Meanwhile, Bitcoin dipped below $100,000 due to market turbulence driven by competition in the AI sector and Federal Reserve uncertainty.
Ethereum's January Decline Sets Stage for Bullish February
Ethereum (ETH) experienced a sharp decline in January by dropping close to 7% and diverging from the broader cryptocurrency market, including Bitcoin. ETH started the year at a high of $3,400 but since fell to $3,049, according to CoinMarketCap.
Ethereum’s price action over the past month (Source: CoinMarketCap)
Despite this lackluster start to the year, historical data offers a more bullish outlook for Ethereum in the coming months. February and March have traditionally been very strong periods for the altcoin.
CoinGlass data reveals that ETH has only experienced one February decline in its history, back in 2018, after a 50% surge in January. Over the past six consecutive years, ETH posted gains in February, with its largest increase occurring in 2024 when it climbed 46% from $2,280 to $3,380. Similarly, March saw gains in seven of the past nine years.
Market sentiment among Ethereum supporters is also still quite optimistic despite the current price drop. Engineer and analyst “Wolf” recently shared their confidence in Ethereum’s long-term potential, and described it as the "best asymmetrical bet" due to the strength of its historical chart performance. Ethereum educator Anthony Sassano also commented positively on recent changes in the Ethereum Foundation, and believes there will be a renewed sense of determination in the community.
While January has been challenging for Ethereum, analysts believe the cryptocurrency is well-positioned to benefit from historically bullish trends in February and March.
Based Rollups Could Transform Ethereum's Future
Executives from leading Ethereum layer 2 networks, including Base, Optimism, and Arbitrum, are willing to improve Ethereum’s network unity by adopting “based” and “native” rollups. These innovations could boost security and reduce fragmentation across the ecosystem.
Jesse Pollak, head of Base, pointed out the potential of based rollups during a Jan. 25 call with Ethereum founders and developers. He believes they can play an important role in creating a stronger connection to Ethereum while improving security guarantees. Optimism Foundation Director Ben Jones also voiced his support.
Call with Ethereum founders and devs (Source: YouTube)
Based rollups were introduced by Ethereum core developer Justin Drake in 2023, and they shift the block-building process back to Ethereum’s base layer, decentralizing it by involving all Ethereum validators rather than relying on a single centralized sequencer. This change addresses concerns over centralization in existing layer 2 networks, which generated huge revenue through centralized sequencers. Although this transition could reduce layer 2 profits from Maximum Extractable Value, it will reallocate revenue to Ethereum’s base layer, which could potentially benefit ETH’s price.
Native rollups are another proposed improvement, which would enhance transaction execution at the base layer, fostering better network composability. Despite the benefits, decentralized sequencing would extend transaction confirmation times to 12 seconds compared to the near-instant confirmations currently offered by layer 2 networks.
Several executives also support adopting “FABRIC,” which is an infrastructure standard that is designed to facilitate based rollups. Taiko’s CEO Daniel Wang confirmed that his firm is ready to implement FABRIC to address interoperability issues. Taiko was the first layer 2 to adopt based rollups.
Overall, Ethereum layer 2s are more than ready to enhance the network’s decentralization, composability, and unity, even at the expense of short-term revenue advantages.
Paradigm Pushes for Faster Ethereum Protocol Upgrades
Paradigm, a crypto venture capital firm, called for faster implementation of protocol changes in Ethereum to adapt to evolving market structures while still preserving the network’s core values. In a blog post that was published on Jan. 25, Paradigm argued that Ethereum’s development pace, historically averaging one major change per year, could accelerate without compromising its principles of decentralization, openness, and neutrality.
The firm believes that Ethereum’s resources, including its talented researchers and engineers, are more than sufficient to support quicker and parallel development to solve problems efficiently and avoid unnecessary delays.
Paradigm also pointed out the importance of prioritizing high-impact improvements, like allowing Ethereum layer 2 networks to inherit security directly from the base layer through native rollups. This aligns with the recent support from layer 2 executives, who are willing to adopt these solutions to improve security and reduce fragmentation. The firm also believes there is a need to scale Ethereum’s mainnet without modifying the block gas limit and called for improvements in wallet infrastructure to simplify user experiences, including eliminating the reliance on private keys.
The venture capital firm also mentioned that client diversity should not hinder the pace of innovation and announced the development of the Reth Ethereum testnet to provide developers with an experimental platform for new ideas. Paradigm considers these protocol changes crucial to driving blockchain innovation and achieving Ethereum’s ambitious roadmap.
The Ethereum Foundation itself recently committed resources to the ecosystem by allocating 50,000 ETH, which is valued at close to $160 million, to support the decentralized finance (DeFi) space. This happened after an announcement by Ethereum co-founder Vitalik Buterin that the nonprofit organization will undergo structural changes to provide more active support for developers and increase transparency in the community.
Bitcoin Dips Below $100K
Despite outperforming Ethereum throughout January so far, Bitcoin fell below $100,000 for the first time since President Donald Trump’s inauguration on Jan. 20. This was likely due to market turbulence driven by competition in the artificial intelligence (AI) sector and shifting monetary policy expectations.
Bitcoin’s price action over the past 24 hours (Source: CoinMarketCap)
Analysts largely attributed the decline in BTC’s price to the rapid rise of China-based AI app DeepSeek, which recently overtook ChatGPT to claim the top spot on Apple’s App Store rankings in the US. As a result, this caused fears of an escalating AI arms race.
The success of DeepSeek sent shockwaves through various sectors, including technology and cryptocurrency. Nvidia, which is also a dominant player in the AI space, saw its valuation dip by 3.12% to $3.49 trillion by Jan. 24. In the crypto market, approximately $864 million in positions were liquidated, with Bitcoin long positions contributing $250 million, according to CoinGlass data.
Market sentiment was dampened even more by expectations of a hawkish tone from the US Federal Reserve. With no rate cuts expected at its upcoming meeting on Jan. 28 and 29, traders have scrambled for downside protection. Analysts suggest the market is likely to remain range-bound until fresh policy signals emerge. Overall, the COO of Bitget Alvin Kan shared that investor caution intensified due to volatility in the US AI market and broader economic uncertainties.
Despite the negative sentiment, Matrixport analysts presented a more bullish outlook due to the Chinese New Year and Lunar New Year celebrations across Asia, which are historically favorable times for Bitcoin. This festive season is known to create a statistically strong 20-day window for the cryptocurrency, which certainly could provide some hope for a potential rebound despite the current market challenges.
