Ether’s Lackluster Performance Compared to Bitcoin Signals Weakening Investment Appeal
Crypto investors are beginning to question the investment potential of ether, the second-largest cryptocurrency by market cap. Ethereum, known for its smart contracts platform that can support various applications, is facing doubts about its appeal. In contrast, bitcoin’s value proposition remains clear and widespread. Ether is currently trading nearly 50% below its all-time high, lagging behind bitcoin by 44% since the Merge that occurred two years ago. Despite bitcoin’s rally in March to a new record this year, ether has not followed suit. Ether ETFs experienced nine consecutive days of outflows totaling $115 million between August 15 and 27, with net outflows since their launch in July. In contrast, bitcoin ETFs saw inflows of $427 million in eight of those nine days in August, with strong inflows in the initial five weeks post-launch in January.
David Duong, head of institutional research at Coinbase, noted challenges in educating new investors on Ethereum’s supply schedule and smart contract utility, as well as the absence of staking yields, possibly contributing to the lack of interest in ETH ETFs. The sentiment around ETH among crypto-native investors might have been affected by shifting narratives in previous bull cycles and the emergence of strong technological competitors like Solana and other next-gen chains. While ether has declined by 2% this year, Solana’s SOL token has surged by 20%, and bitcoin is up by 25%. The ETH/BTC ratio, indicating the relative value of ether compared to bitcoin, is at its lowest level since April 2021.
Mike Colonnese, an analyst at H.C. Wainwright, mentioned a lack of a compelling investment case for ETH currently and highlighted institutional investor preference for bitcoin due to its clearer supply schedule compared to ether. Julio Moreno, head of research at CryptoQuant, emphasized bitcoin’s well-established use case as a store-of-value currency, contrasting with ETH’s evolving narratives over time, which might confuse traditional investors. DeFi protocols, dominating activity on Ethereum, have seen a surge in activity, but questions remain about their ability to drive significant growth on the Ethereum blockchain.
Ethereum co-founder Vitalik Buterin expressed that the existence of the DeFi market depends on the ETH market, suggesting limitations to its growth potential. Despite debates surrounding the utility of the DeFi sector, Ethereum remains a credible platform for developers, with promising progress seen in sectors like the tokenization of real-world assets. Citi reported a significant increase in unique daily users on the Ethereum network across Layer 1 and Layer 2 networks compared to 2023 averages. However, Ethereum’s transaction fee revenue is at multi-year lows, and its supply is increasing, diverging from the narrative of “ultra sound money” post the Merge.
In conclusion, while challenges persist for ether, Ethereum’s role as a neutral developer platform and the growth of adjacent sectors like tokenization indicate ongoing promise amidst the evolving crypto landscape.
