In early trading on Wednesday, cryptos were generally down, with the largest digital currency bitcoin falling by more than 5%, breaking the $60,000 mark and dropping to near the $58,000 mark. Ethereum plummeted at one point, briefly falling below the $2,400 mark during the day.

Federal Reserve Chairman Powell gave the clearest signal last Friday that the Fed plans to cut benchmark interest rates from their highest level in over 20 years, and major tokens are retracting. Institutional analysts believe that major tokens are digesting Powell's signal from last week.

According to data compiled by Bloomberg, the spot ethereum ETF launched in July has seen a net outflow of nearly $0.112 billion in total over the past eight trading days, the longest net outflow period so far.

Ether has yet to recover the territory it lost in early August when the cryptocurrency market and global stock markets were hit hard due to the lifting of the yen carry trade.

Muneeb Khan, Executive Director of Kraken OTC, said in an email that while the Ethereum blockchain accounts for the majority of decentralized financial activities, its native token Ethereum is "looking for new narratives to drive its continued growth." At the same time, "the initial enthusiasm for Ethereum's potential deflationary attributes seems to have weakened."

While Bitcoin has a fixed upper limit of 21 million coins, the supply of Ethereum is not fixed, and the total number of tokens in circulation has increased for most of this year.

Cici Lu McCalman, the founder of Venn Link Partners, said that platforms like Arbitrum and Optimism, also known as Layer-2 chains, are helping Ethereum scale and now starting to erode transaction fees on the network.

Lu explained that Ethereum relies on burning a portion of the transaction fees it earns to permanently remove tokens from circulation. Therefore, diverting fees to Layer-2 platforms makes Ethereum 'inflationary rather than deflationary'.

Research firm Messari said in a report on Monday that the shift of economic activity from Ethereum to an increasing number of Layer-2 chains has raised 'concerns and broader questions about what Ethereum should focus on developing and what the future of ETH as an asset will look like'.

Lu added that the industry focus has shifted from DeFi projects to so-called meme coins, which is partly why Ethereum has underperformed compared to its competitor Solana. The Solana blockchain has gained popularity among meme coin issuers.

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