Understanding Ethereum’s Underperformance in Comparison to Bitcoin

Ever since Ethereum transitioned from Proof-of-Work to Proof-of-Stake in September 2022, its performance compared to Bitcoin has been on a decline. Initially considered as ultra-sound money, Ethereum has now lost its reputation and is teetering on the edge of undervaluation.

Blockchain analytics platform CryptoQuant has pinpointed key factors contributing to Ethereum’s underperformance. These include inflationary supply dynamics and weaker network activity when compared to Bitcoin. The underperformance is evident in the current ETH/BTC price, which stands at 0.0425, the lowest level since April 2021.

The Dencun upgrade, implemented in March, has had a significant impact on Ethereum’s network. This upgrade introduced data blobs, leading to a decrease in transaction fees. As a result, the total supply of ETH has been steadily increasing, reaching 120.323 million. The inflationary nature of the supply has caused concerns, with the total amount of ETH in circulation reaching its highest level since May 2023.

Transaction Count Disparity

In addition to supply dynamics, Ethereum is also lagging behind Bitcoin in terms of transaction count. While Bitcoin has seen record-high transaction counts due to inscriptions, Runes, and layer-2 networks, Ethereum has experienced a decline. The transaction count for Ethereum has dropped from 27 in June 2021 to 11, one of its lowest levels since July 2020.

Market Value to Realized Value Ratio

Analysts predict that Ethereum’s underperformance relative to Bitcoin could worsen as it is still above the undervaluation territory. Ethereum will only be considered undervalued against Bitcoin when the ETH/BTC Market Value to Realized Value ratio falls to 0.45. At its current rate, Ethereum is at risk of further decline in comparison to Bitcoin.

Overall, Ethereum’s underperformance in comparison to Bitcoin can be attributed to a combination of factors such as supply dynamics, network activity, and market valuation. As the crypto landscape continues to evolve, it will be crucial for Ethereum to address these challenges in order to regain its competitive edge and investor confidence.

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