Summary
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Major institutional investors like Galaxy Digital and Paradigm have been observed reducing their Ether (ETH) holdings recently, moving significant amounts likely in preparation for selling, coinciding with a period of foundational challenges for Ethereum.
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This institutional cautiousness aligns with declining Ethereum base-layer activity, falling network fees, rising ETH inflation, and concerns that Layer 2 solutions are drawing value away from the main chain.
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A key factor weakening investor sentiment is Ethereum’s return to a net inflationary state, as drastically lower network fees mean the EIP-1559 burn mechanism is no longer sufficient to offset ETH issued as staking rewards.
Ethereum faces what may be one of its most critical junctures since launching.
Base-layer utilization is significantly decreasing, essential network metrics are approaching levels unseen in years, and even co-founder Vitalik Buterin is suggesting major changes to its core design.
Institutional Rebalancing and Market Dynamics
Instead of waiting to observe the results, institutional entities are acting now.
On-chain data reveals that prominent, long-standing supporters like Galaxy Digital and Paradigm have been lowering their Ether (ETH) positions over the past few weeks.
Throughout April, activity on Ethereum’s primary network layer has continued its decline.
Network transaction fees generated by Ethereum are falling, while the rate of ETH inflation has been increasing.
Although Layer-2 networks are progressing, there are concerns they are drawing value capture away from the main Ethereum chain.
Galaxy Digital Reduces ETH Holdings
While institutional entities are reducing Ethereum allocations, their interest hasn’t completely vanished; it seems more like a temporary sidelining as alternatives like Solana (SOL) are explored.
Blockchain analysts monitoring substantial crypto transfers recently noted several institutions relocating ETH from their known wallets, presumably for selling purposes.
Lookonchain indicated that Galaxy Digital transferred 65,600 ETH (worth $105.5 million) to the Binance exchange.
Arkham data shows that although Galaxy Digital’s Ether holdings peaked near 98,000 ETH in February, they have decreased to approximately 68,000 ETH currently.
Solana Gains Momentum as Alternative
Coinciding with Galaxy’s reduction in Ether stakes, the firm also moved 752,240 SOL (valued at $98.37 million), as reported by Lookonchain.
Ethereum has notably ceded momentum to Solana, which emerged as the preferred platform during the heightened memecoin trading activity characterizing much of 2024 and early 2025.
Although this frenzy diminished due to issues like scams and low-quality tokens, it also served to highlight Solana’s technical capabilities in managing large transaction volumes effectively without major fee surges or operational failures.
Paradigm Follows Suit
Paradigm stands as another significant investor reducing its Ether position.
On April 21st, the firm relocated 5,500 ETH (around $8.66 million) to Anchorage Digital.
On-chain analyst EmberCN noted that Paradigm had transferred approximately 97,000 ETH (roughly $301.57 million) to Anchorage since January 2024, with these funds subsequently being moved to centralized exchanges.
Jayendra Jog, co-founder of Sei Labs, commented to Cointelegraph, “While institutional investors initially bought into the ‘ultra-sound money’ narrative, they’re now facing a reality where decreasing protocol revenue and weakening tokenomics create legitimate concerns.”
Resurgence of Net Inflation for Ether
The deflationary nature of Ether has been a key attraction for Ethereum investors, implemented via two significant network upgrades.
EIP-1559, introduced with the London hard fork in August 2021, initiated the burning of a portion of transaction fees.
Subsequently, the Merge upgrade in September 2022 transitioned Ethereum to a proof-of-stake consensus, substantially lowering the issuance rate of new tokens.
Fee Burn Mechanism Weakens
Following the Merge, Ether’s total supply consistently diminished until April 2024, at which point Ether’s inflation started to rise again.
By early February 2025, the aggregate ETH supply exceeded the level recorded immediately after the Merge.
Declining network fees are a significant factor contributing to Ether’s renewed inflation, as lower fees translate to less Ether being destroyed via the burning mechanism.
According to IntoTheBlock data, Ethereum generated 1,873.52 ETH in fees between April 14th and April 21st.
This amount was slightly above the 1,697.61 ETH collected in fees during the week starting March 17th, which marked the lowest weekly fee collection (in ETH terms) since July 31, 2017.
Also Read: Data Challenges Notion of $1.4K as Ethereum’s Definitive Bottom
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