Ethereum’s Underperformance Compared to Bitcoin

Ethereum has underperformed Bitcoin by as much as 44% since the Ethereum blockchain’s transition to proof-of-stake, known as The Merge, nearly two years ago, according to analysts from CryptoQuant.

Overview of Ethereum’s Performance

Next week marks the second anniversary of Ethereum’s switch to a proof-of-stake network. Since then, Ethereum has lagged behind Bitcoin significantly. CryptoQuant analysts noted that, despite the approval of Ethereum spot exchange-traded funds (ETFs) in the U.S. on July 23, ether has continued to underperform, with the ETH/BTC price at 0.0425, the lowest since April 2021.

Moreover, ether has also underperformed compared to other altcoins like Solana and BNB, falling 53% and 18% respectively since The Merge, as stated by CryptoQuant’s Head of Research, Julio Moreno.

The analysts predicted that ether could decline further relative to Bitcoin, estimating it would need to drop to around 0.02 in terms of Bitcoin for it to enter what they consider undervaluation territory—a potential 50% fall.

Reasons for Underperformance

CryptoQuant analysts identified weaker network activity as a primary reason for Ethereum’s lag. They noted that Ethereum’s overall transaction fees have been decreasing compared to Bitcoin, which can be linked to lower transaction fees post-Dencun upgrade. The transaction count on Ethereum has also declined significantly, reaching one of its lowest points since July 2020.

Furthermore, the supply dynamics of ether were discussed, with continuous growth in the total supply since April 2023, reaching 120.323 million ether, marking the highest level since May 2023.

Analysts emphasized a shift in trader preferences, where market participants appear to favor Bitcoin over ether. This shift is reflected in the decreasing spot trading volume of ether compared to Bitcoin, with the ETH/BTC spot trading volume ratio falling from 1.6 to 0.76 over the past week.