The cryptocurrency market is under intense bearish pressure in recent weeks, with several large-cap assets including Bitcoin (BTC) and Ethereum (ETH) struggling to make a positive shift. The past week has been particularly dull for the two largest cryptocurrencies, as they posted double-digit losses in the last seven days.
While BTC price action has cooled over the past two quarters of 2024, flagship cryptocurrency Ethereum still outperforms in terms of market action. While some of this can be attributed to ETH’s disappointing performance over the past few weeks, a blockchain analytics firm has offered some insight into the dynamics between Bitcoin and Ethereum.
This Is Why Bitcoin Is Outperforming Ethereum: CryptoQuant
In its latest report, CryptoQuant discussed Ethereum’s performance against Bitcoin over the past few years. According to the platform’s data, Ethereum has underperformed Bitcoin by 44% since The Merge, an event in 2022 that saw Ethereum (formerly a Proof-of-Work blockchain) transition to a Proof-of-Stake (PoS) network.
At the time of writing, data from TradingView shows that the ETH/BTC price is trading around $0.04122, the lowest level since April 2021. ETH’s underwhelming action against BTC has continued despite the recent launch of spot Ethereum exchange-traded funds (ETFs) in the United States. In fact, the ETH/BTC pair has dropped by 18% since the funds were approved.
Source: CryptoQuant
According to CryptoQuant, Ethereum’s slow action against Bitcoin can be associated with its relatively weaker network activity. For example, Ethereum’s network’s total transaction fees have been steadily decreasing after the Dencun UpgradeMeanwhile, the relative number of transactions has fallen to its lowest level in years: 11.
Furthermore, the supply dynamics have not exactly been favorable for Ethereum compared to Bitcoin. CryptoQuant highlighted that the total Ether supply has been growing consistently since early April, shortly after the Dencun upgrade. Coincidentally, Bitcoin completed its fourth halving event In April, miner rewards dropped from 12.5 BTC to 6.25 BTC.
Moreover, investors have shown a preference for Bitcoin over Ethereum. This fact is supported by the decline in the relative spot trading volume of ETH against BTC, which has dropped from 1.6 (that is, the spot trading volume of the former was 1.6 times larger than that of the latter) to 0.76 over the past week.
What now?
Interestingly, CryptoQuant believes that Ethereum could continue to underperform Bitcoin, especially since it is still above the undervaluation zone. According to the analytics firm, ETH/BTC would have to drop at least 50% from its current level to reach the undervaluation zone. At the time of writing, Bitcoin price is trading around $53,700, while Ethereum is valued at $2,213, according to CoinGecko Data.
ETH struggles against BTC on the daily timeframe | Source: ETHBTC chart from TradingView
Main image from iStock, chart from TradingView