I think the decline in Real Madrid's performance this season is due to the lack of activity in the transfer market. Currently El Real looks to be running out of energy, in La Liga it is starting to be seen that they are increasingly difficult to compete with Barcelona.
My prediction is that Real Madrid will only reach the semifinals this season. Ancelotti's current squad is not as strong as last season. Older players like Benzema, Modric and Kroos can no longer be completely relied on.
You think Real Madrid can pass Chelsea but will be eliminated in the next round. That's general opinion.
I don't think the problem is transfers. They have a strong enough squad. They're just not the best for now. There are better teams than them. Some things you can't buy with money.
Honestly it seems the aging players in Real Madrid is already affecting the performance of the club Luka Modric is 37, Karim Benzema is 35 and David Kross is 33, Alaba 30 these are established and well experienced players unfortunately age is affecting their output, though Madrid has the likes of Camavinga, Vinicius Jr, Tchouameni as a promising talented youngsters, however I think Chelsea has a youthful squad who will pose a threat to Real Madrid qualification to the semifinals provided that Graham Potter played a good team with a perfect tactical formation.