In the first half of 2025, Bitcoin (BTC) once again demonstrated its dominance in the cryptocurrency market, outpacing Ethereum (ETH) with a year-to-date gain of approximately 87.1%, compared to ETH’s 63%. Despite Ethereum’s transition to a proof-of-stake (PoS) consensus mechanism and the highly anticipated Shanghai upgrade, its market performance has lagged behind BTC — a trend that defied many investors’ expectations at the start of the year. What lies behind this divergence? And more importantly, what risks and opportunities does Ethereum face as it navigates evolving regulatory landscapes and technological frontiers?
Ethereum’s Post-Shanghai Upgrade: Pressure or Progress?
The Shanghai upgrade, implemented in early 2025, marked a pivotal moment for Ethereum by enabling validators to withdraw staked ETH. Many speculated this would trigger massive sell-offs and downward price pressure. However, data from blockchain analytics platforms like Oklink reveal a different story.
As of late June 2025, Ethereum’s staking rate stands at 21.15% — and notably, this figure has been on an upward trend since the upgrade. This indicates that new ETH deposits into staking contracts continue to exceed withdrawals. Rather than increasing circulating supply, the network is experiencing a net reduction in liquid ETH, effectively tightening supply over time.
👉 Discover how staking trends are quietly reshaping Ethereum’s supply dynamics.
Moreover, Ethereum’s deflationary mechanism — powered by EIP-1559 — continues to strengthen. By July 2025, over 3.4 million ETH have been permanently burned through transaction fee销毁. While this deflationary effect may seem subtle during market consolidation, it becomes increasingly powerful during periods of high network activity, such as DeFi summers or NFT booms. In bull cycles, reduced issuance and rising demand can create powerful upward price momentum.
Thus, far from facing existential sell-off pressure, Ethereum appears to be entering a phase of structural supply contraction, laying a strong foundation for future value appreciation.
Regulatory Crossroads: Is Ethereum at Risk of SEC Scrutiny?
One of the most significant headwinds for PoS assets in 2025 has been regulatory uncertainty — particularly from the U.S. Securities and Exchange Commission (SEC). While BTC remains broadly classified as a commodity, the SEC has taken a harder stance on other digital assets.
In a 2023 statement that still echoes today, former SEC Chair Gary Gensler suggested that “everything other than Bitcoin is a security.” Though Ethereum has not yet been formally targeted, the legal gray zone persists. The agency’s hesitation may stem from jurisdictional disputes with the Commodity Futures Trading Commission (CFTC), which views ETH as a commodity. Additionally, launching a case against Ethereum could provoke widespread backlash across the crypto ecosystem — especially given its foundational role in DeFi, NFTs, and Web3.
However, recent market reactions suggest investors are already pricing in regulatory risk. PoS-based tokens have underperformed relative to proof-of-work (PoW) alternatives like Litecoin (LTC), Bitcoin Cash (BCH), and even Bitcoin SV (BSV). These networks, perceived as less likely to be classified as securities, have seen renewed interest from institutional players and speculative capital alike.
For instance:
- EDX Markets, backed by Citadel and Fidelity, launched with support for BTC, ETH, LTC, and BCH.
- Social and trading volume metrics show spikes in older PoW chains, signaling shifting investor sentiment.
- Projects like eCash (formerly BCHA) and Dash have experienced multi-month rallies amid growing narrative momentum around “regulatory-safe” blockchains.
This capital rotation reflects a broader market psychology: in uncertain regulatory environments, simplicity and decentralization are rewarded. PoW chains, with their longer track records and simpler economic models, are regaining favor — at least temporarily.
The Turning Point: Dencun Upgrade and Ethereum’s Path to Renewed Dominance
Despite short-term headwinds, Ethereum’s long-term trajectory remains promising — primarily due to its next major upgrade: Dencun.
Scheduled for rollout by the end of 2025, Dencun introduces several critical improvements aimed at solving Ethereum’s most persistent issue — scalability. At the heart of this upgrade is EIP-4844, also known as proto-danksharding. This proposal introduces blobs — temporary data storage units that drastically reduce the cost of data availability for Layer 2 rollups.
Currently, over 80% of Layer 2 transaction fees go toward posting data on Layer 1. With EIP-4844, these costs are expected to drop by 90% or more, making rollup-based scaling not only viable but economically superior to alternative Layer 1 solutions.
The implications are profound:
- Arbitrum, Optimism, zkSync, and StarkNet will become significantly cheaper to use.
- New entrants building on OP Stack or similar frameworks — including Coinbase’s Base and BNB Chain’s opBNB — gain stronger technical footing.
- A “Layer 2 superchain” vision begins to materialize, where interoperability and shared security create a seamless user experience across dozens of rollups.
This isn’t just infrastructure improvement — it’s ecosystem catalysis. Lower fees and faster transactions will reignite innovation in:
- Decentralized finance (DeFi)
- Non-fungible tokens (NFTs)
- On-chain gaming and metaverse applications
- Cross-industry use cases in supply chain, identity, and IoT
👉 See how the Dencun upgrade could unlock the next wave of Web3 adoption.
Why Did Ethereum Lag Behind Bitcoin in Early 2025?
To understand ETH’s underperformance, we must contrast it with BTC’s surprising resurgence.
While Ethereum focused on internal upgrades, Bitcoin’s ecosystem exploded with innovation:
- Ordinals Protocol: Enabled NFT-like inscriptions directly on Bitcoin, sparking a native digital art movement. High-profile projects like Yuga Labs’ TwelveFold launched on Bitcoin itself.
- BRC-20 Tokens: Though primitive compared to ERC-20, these meme coin experiments injected viral energy into the network.
- Nostr & Damus: Jack Dorsey-backed decentralized social protocols gained traction, turning Bitcoin into a platform for communication and payments via the Lightning Network.
These developments transformed Bitcoin from a "digital gold" narrative into a vibrant application layer — attracting developers, creators, and retail users alike.
Ethereum, meanwhile, lacked similar headline-grabbing innovations post-Shanghai. The ability to unstake ETH was operationally important but not transformative for dApp usage or user growth.
Looking Ahead: Ethereum’s Comeback Cycle?
Timing may now favor Ethereum. As Dencun approaches and Layer 2 ecosystems mature, the network is poised for a renaissance. Combined with macro tailwinds — including potential Federal Reserve rate cuts in 2026 and Bitcoin’s halving cycle boosting overall market sentiment — ETH could enter a strong accumulation phase by late 2025.
With deflationary pressure increasing, staking adoption rising, and scalability solutions nearing completion, Ethereum is not fading — it’s preparing.
Frequently Asked Questions
Q: Why did BTC outperform ETH in early 2025?
A: Bitcoin benefited from unexpected ecosystem innovations like Ordinals and BRC-20 tokens, while Ethereum’s Shanghai upgrade, though important, didn’t immediately boost dApp activity or user growth.
Q: Is Ethereum at risk of being classified as a security?
A: While the SEC has not taken action against ETH, regulatory uncertainty persists. However, Ethereum’s decentralized nature and CFTC’s classification of ETH as a commodity reduce near-term enforcement risks.
Q: How will the Dencun upgrade impact Ethereum users?
A: It will dramatically lower transaction costs on Layer 2 networks — potentially by over 90% — making DeFi, NFTs, and other applications far more accessible.
Q: Does staking after Shanghai lead to sell pressure?
A: No. Data shows more ETH is being staked than withdrawn post-upgrade, indicating strong holder confidence and tightening circulating supply.
Q: Can Ethereum regain leadership in crypto innovation?
A: Yes. With Dencun unlocking scalable infrastructure and major players building on its Layer 2 stack, Ethereum is well-positioned to lead the next wave of Web3 development.
Q: What makes PoW coins attractive in 2025?
A: They’re seen as less likely to face SEC scrutiny due to their decentralized mining models, making them safer bets during regulatory uncertainty.
👉 Stay ahead of the next Ethereum breakout with real-time on-chain insights.