Bitcoin (BTC) and Ethereum (ETH), the two largest assets by market value in the cryptocurrency sector, have displayed divergent performance trends over the past two years. Ethereum has notably trailed behind Bitcoin, experiencing more significant price fluctuations and underperformance.
What Caused Ethereum’s Decline?
Data from CryptoQuant indicates that Ethereum has underperformed Bitcoin by 44% since “The Merge,” a transition from a Proof of Work (PoW) to a Proof of Stake (PoS) mechanism. Following this change, Ethereum’s ability to keep up with Bitcoin has weakened, with the ETH/BTC price ratio hitting its lowest point of 0.0425 since April 2021. Even potential positive impacts, like the approval of Spot ETFs in 2024, have not been sufficient to reverse Ethereum’s lagging performance.
Ethereum vs. Bitcoin: Network Activities
The recent months have demonstrated stark contrasts between Ethereum and Bitcoin concerning network fees and transaction activities. With Ethereum’s Dencun upgrade, network fees decreased, leading to diminished network activity. Ethereum’s transactions plummeted from 27 transactions per second in June 2021 to just 11, a level not seen since July 2020. Conversely, Bitcoin has seen a rise in transactions and network fees, driven by demand for block space sparked by innovations like Bitcoin Ordinals and Runes.
ETH/BTC MVRV Ratio Analysis
Analyzing the Market Value to Realized Value (MVRV) ratio over two years reveals a significant gap between Ethereum and Bitcoin. Ethereum’s MVRV ratio stands slightly below 1.16%, while Bitcoin’s ratio exceeds 14%. This disparity underscores Ethereum’s lag behind Bitcoin. CryptoQuant explains that the MVRV ratio reflects the difference between an asset’s current market value and its realized value, indicating the profit or loss status for investors.
Key Conclusions
– Ethereum has underperformed Bitcoin by 44% since transitioning to a Proof of Stake mechanism.
– The ETH/BTC ratio is at its lowest since April 2021, at 0.0425.
– Ethereum’s transaction count dropped significantly after the Dencun upgrade.
– Bitcoin’s increased transactions and fees were driven by new developments like Ordinals and Runes.
– Ethereum’s MVRV ratio is slightly below 1.16%, whereas Bitcoin’s stands above 14%.
– BTC holders are currently seeing over 14% profit, while ETH holders are experiencing a loss of over 1%.
In summary, Ethereum’s post-PoS challenges, coupled with lower network activity and fees, have weakened its deflationary pressure, contributing to its underperformance. Meanwhile, Bitcoin’s network activities and rising transaction fees have kept BTC holders in profitable positions.