This sharp revision is largely due to the growing dominance of Ethereum\u2019s<\/a> <\/strong>Layer 2 solutions, with the Base network emerging as a key player in this shift. Geoffrey Kendrick, the bank’s head of digital assets research, explained that Base\u2019s increasing market share has caused Ethereum to lose significant value, estimating that the Layer 2 network alone has removed around $50 billion from Ethereum\u2019s market cap.<\/p>\n

According to Kendrick, Ethereum has inadvertently “commoditized itself” by allowing Layer 2 solutions to take center stage. As more transaction fees bypass the Ethereum mainnet in favor of Layer 2, Ethereum\u2019s foundational layer has seen a reduction in its profitability, creating what Kendrick calls “super-profits” for Layer 2 networks like Base. These networks, according to Kendrick, are reaping the benefits of Ethereum\u2019s structure, extracting significant value while Ethereum itself faces diminishing returns.<\/p>\n

While Kendrick does suggest that one way to address this issue could be by taxing these Layer 2 platforms\u2014much like governments tax foreign-owned mining companies extracting excess profits\u2014he acknowledges that such a move is unlikely. Without such changes, he predicts that the relative value of Ethereum will continue to decrease in comparison to Bitcoin<\/a><\/strong>, further pushing down the ETH-BTC ratio.<\/p>\n