Ethereum (ETH) has historically surpassed Bitcoin (BTC) in price performance, particularly over extended periods, including halving years and bull markets. Nonetheless, since the bear markets of 2018-2019 and 2022-2023, Ethereum has consistently lagged behind Bitcoin. As of 2024, Ethereum is notably trailing Bitcoin, marking three years of underperformance.
ETH/BTC Ratio Hits 3.5-Year Low
The ETH/BTC ratio has recently fallen to a 3.5-year low, breaking through a significant support level. Historical patterns indicate that in previous halving years, this ratio often declined from its support line between September and December, followed by a recovery in the first quarter of the subsequent bull market year. A similar pattern might emerge in 2024; however, the current situation is more concerning. The support line at 0.05, which has been stable for the past 3.5 years, suggests a more bearish outlook for Ethereum.
In 2019, the Federal Reserve’s interest rate cuts led to a 22% drop in the ETH/BTC ratio, a trend that could potentially repeat in September 2024. Despite fluctuations, Bitcoin has historically outperformed Ethereum in similar conditions, a trend that may continue into 2024.
Ethereum Supply Turns Inflationary
Following the 2022 Merge, Ethereum’s supply had been decreasing due to the “burning” mechanism introduced with Ethereum Improvement Proposal (EIP) 1559. This mechanism reduced the total supply by permanently removing a portion of transaction fees. However, the March 2024 Dencun upgrade reversed this trend. The upgrade, which included proto-danksharding and “blobs” to enhance data storage and lower transaction fees on layer-2 networks, led to a reduction in ETH burns. Consequently, Ethereum’s supply has increased, with over 213,500 ETH added since the upgrade, bringing it back to May 2023 levels.
ETF Outflows Add to Ethereum’s Challenges
The anticipated boost from Ethereum ETFs has not materialized, with a net outflow of $465 million since their introduction. Grayscale’s ETHE has seen substantial outflows, overshadowing the inflows into other Ethereum ETFs. This situation reflects a broader trend where ETF outflows contribute to Ethereum’s price struggles, as Authorized Participants (APs) sell ETH to balance ETF share prices with the underlying asset value.
While current trends paint a bearish picture for Ethereum, the asset remains fundamentally strong. It continues to lead in total value locked (TVL) across DeFi platforms and sees consistent development and upgrades. Despite the challenges posed by market conditions and ETF outflows, Ethereum is expected to regain momentum by early 2025 and potentially outperform Bitcoin once again.
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