Ethereum’s market value exhibits a weaker response to investment inflows compared to Bitcoin. On July 23, the U.S. welcomed its first spot Ethereum exchange-traded funds (ETFs), which amassed over $100 million in inflows. Despite this promising start, Ethereum is unlikely to experience the dramatic surge Bitcoin saw when asset managers launched their ETF funds earlier this year.
Why Does Ethereum Lag Behind Bitcoin?
According to CryptoQuant’s latest weekly report, new money entering crypto assets like ETF funds impacts Ethereum less than Bitcoin, due to differing multiplier effects between the networks. Analysts explain that Ethereum’s multiplier, which indicates the change rate in market value, is lower than Bitcoin’s and has remained low in 2024. For every $1 invested in Bitcoin, its market value increases by $5, while Ethereum’s market value rises by only $1.34 for each dollar invested.
Moreover, Ethereum’s growing supply could further hinder its growth after the ETF launch. The Dencun upgrade, implemented in March, has increased Ethereum’s supply by introducing data bundles and significantly reducing transaction fees, which has led to a decrease in Ethereum burned.
What Are the Implications of Ethereum’s Supply Increase?
Before Dencun, Ethereum had upgrades that kept the network deflationary by burning a portion of transaction fees. Post-Dencun, Ethereum’s supply has been increasing rapidly, the fastest rate observed since The Merge in September 2022. With a total and circulating supply of 120.22 million and no maximum limit, Ethereum’s structural change in monetary policy has diminished its “ultra-sound money” narrative compared to Bitcoin’s capped supply of 21 million.
Key Takeaways for Investors
Investors should consider the following factors:
- Ethereum’s market value shows a weaker reaction to investment inflows than Bitcoin.
- The Dencun upgrade has led to an increase in Ethereum’s supply.
- Ethereum’s spot trading volume on centralized exchanges remains substantial but still trails behind Bitcoin’s.
Despite Ethereum’s recent positive momentum and bottomed-out prices, its spot trading volume on centralized exchanges remains a crucial metric. Since January, Ethereum’s spot volume has been 85% of Bitcoin’s during the same period and 58% of the leading cryptocurrency since 2020.