Ethereum at a Crossroads: Balancing Short-Term Risks and Long-Term Infrastructure Potential

Main Points :

• Citigroup forecasts ETH to be at US$4,300 by end of 2025 under its base case, with a bull case of US$6,400 and a bear case of US$2,200.
• Much of Ethereum’s recent price run‐up is attributed to activity on Layer-2 networks, with only ~30% of that growth passing through to the base layer. This raises concerns about overvaluation.
• Institutional adoption, ETF inflows, stablecoins, and real-world asset tokenization are key growth drivers for ETH. Regulatory clarity (e.g. stablecoin bills) is improving globally.
• Macroeconomic factors (interest rates, risk sentiment, global liquidity) and comparisons with other assets are increasingly influencing ETH’s price behavior.

1. Citigroup’s Forecast: ETH Could Decline in Near Term

In mid-September 2025, major bank Citigroup published a forecast setting Ethereum’s year-end price at US$4,300 in its base case. This reflects a modest decline from price levels around US$4,500 at that time.

However, Citigroup also highlights two alternative scenarios: a bullish case where ETH could reach US$6,400, if activity, adoption, and demand continue accelerating; and a bearish case down to US$2,200, under stress from weak macroeconomic conditions or reduced network usage.

A central rationale in the forecast is that much of Ethereum’s recent growth is happening on Layer-2s (scaling solutions), and only about 30% of that activity contributes back to the main Ethereum chain. Thus, current ETH valuation may be above what fundamentals (on-chain base layer usage, fees, burn) justify.

2. Why Traditional Finance Is Taking ETH Seriously: The Infrastructure Case

While short-term risks are real, the long-term case for Ethereum is grounded in its growing role as infrastructure. Several trends illustrate this:

• Institutional Inflows & ETF Demand: ETFs related to Ethereum are becoming more prevalent. Although Citigroup expects that ETH ETF inflows will be smaller compared to Bitcoin, the emergence of these products signals institutional interest.
• Stablecoins & Tokenization: The use of stablecoins and tokenization (of assets, securities, etc.) built on Ethereum is rising. These functions generate activity, fees, and utility that go beyond speculation.
• Regulatory Progress: Legislation such as the U.S. “GENIUS Act” and efforts for clearer rules globally are reducing uncertainty around stablecoins/tokenization. This regulatory clarity helps institutions feel safer to build and deploy.
• Macroeconomic Sensitivity: ETH’s behavior is increasingly influenced by broader economic factors — interest rates, inflation, liquidity, risk appetite. In many cases it acts more like an equity or risk asset rather than a purely digital commodity.

3. Recent Dynamics: Supply, Deflation/Inflation, and Layer-2s

To evaluate ETH’s chances of growth or decline, several technical and economic variables need close attention:

• Supply Inflation / Deflation Dynamics: In 2025, Ethereum’s supply inflation is estimated to be around 0.74% annually, despite strong demand. The “Dencun” upgrade (adding blob space) has reduced ETH burn rates by about 90%, which lowered deflationary pressure.
• But there is potential for renewed deflation: Layer-2 usage with transaction activity (burning fees) could revitalize the burn mechanism.
• Layer-2 Growth vs Base Layer Value Capture: As more usage moves to L2 networks (Arbitrum, Optimism, zk-Rollups, etc.), the question is how much of that activity translates into economic value (fees, staking rewards, burn) for ETH itself. If too little passes through, ETH’s valuation could lag even as activity appears strong.

4. Implications for Investors & Blockchain Practitioners

For people searching for next crypto assets or ways to realize blockchain’s practical potential, the Ethereum case offers several lessons:

• Short-Term Caution with Long-Term Conviction: Given forecasts like Citi’s, ETH investors should expect volatility and possibly a modest decline before year-end. But over multi-year horizons, the infrastructure built on ETH (DeFi, stablecoins, tokenization, real-world assets) gives a strong foundation.
• Look at Base Layer Metrics, Not Just Price or Hype: On-chain activity on Ethereum’s mainnet (transaction counts, fees, burn), staking participation, and real adoption of tokenized assets are likely more predictive of long-term value than speculative demand alone.
• Watch Regulatory Developments Closely: Bills like the GENIUS Act, regulatory frameworks for stablecoins, clarity in how utilities vs. securities are treated, etc., are key catalysts. If regulation stifles innovation, risk increases; if regulation supports clarity and compliance, institutional adoption will likely accelerate.
• Layer-2s Are Both Opportunity and Challenge: For builders, deploying on L2s offers scalability and lower fees. For investors, monitoring how value captures back to ETH is critical. Projects that facilitate interoperability, better fee routing, and mechanisms that tie back to mainnet burn/stake could outperform.

5. Recent Trends & What’s New (Beyond the Original Article)

Since the original article’s data, some newer developments reinforce or modify the picture:

• The Global Adoption Index by Chainalysis shows increasing grassroots crypto adoption in countries like India and the U.S.
• Regulatory clarity is being improved: the GENIUS Act in the U.S. regarding stablecoin regulation has passed the House and is expected to help stabilize the legal framework.
• ETH ETF demand is growing, though inflows are uneven and sometimes challenged by macro risks.
• Projects in real-world asset tokenization (RWA) continue to grow. Ethereum remains dominant in supporting tokenized assets.

Conclusion

Ethereum is at a pivotal moment. Citigroup’s forecast of US$4,300 by end-2025 may appear cautious, but it is grounded in realistic assessments of how much of ETH’s recent growth comes from speculative sentiment versus core infrastructure and fundamental utility. The upside potential remains substantial — in the US$6,000-plus range — if adoption, tokenization, stablecoins, and regulatory frameworks continue to mature. Conversely, macroeconomic headwinds, lack of value capture, or disappointing base layer metrics could push ETH toward the bear scenario.

For those interested in discovering new crypto assets or real-use blockchain applications, Ethereum remains one of the strongest current bets, particularly for long-term infrastructure play. The correct strategy likely combines close attention to fundamentals, awareness of regulatory shifts, and positioning to capture both Layer-2 scaling gains and base layer rewards.