Ethereum (ETH) has started 2024 strong, but its momentum faded in mid-March. While anticipation for spot Ethereum ETFs (Exchange Traded Funds) brought a May rally, ETH continues to underperform Bitcoin (BTC). Over the past year, ETH has only gained 60% compared to BTC’s impressive 87%.
A new report by CME Group and Glassnode, “Digital Assets: Insights and Market Trends,” delves into the reasons behind ETH’s sluggish performance:
1. Deeper Corrections and Lower Risk Appetite:
Data shows deeper price drops for ETH in 2024. The biggest single correction was 31% between March and May, compared to Bitcoin’s 23% during the same period.
Zooming out, ETH’s drawdown throughout the 2022-24 cycle is also steeper than Bitcoin’s, reaching -42% so far. Historically, corrections exceeded -65% in previous bull market phases.
The ETH/BTC ratio has steadily declined since the Merge, signifying lower investor risk appetite for Ethereum in this cycle.
2. Bitcoin’s ETF Advantage and Increased Competition:
The approval of spot Bitcoin ETFs in January 2024 likely contributed to increased BTC investment.
Rising competition from other proof-of-stake blockchains could also be diverting attention from Ethereum.
3. Lower Futures Trading Activity:
Futures markets, with volumes often exceeding spot trading by 5-10 times, serve as a gauge of investor sentiment.
Despite high open interest for ETH in 2024 (reaching a peak of $17.09 billion in May), derivatives trading volume remains significantly lower than Bitcoin’s.
High futures volume typically indicates strong investor confidence and can lead to price increases. Daily trade volumes of Bitcoin futures currently surpass those of Ethereum.
The Future of ETH: Spot ETF Hopes and Beyond
The report, along with analysts like K33 Research, remains optimistic about Ethereum’s potential. The arrival of spot Ethereum ETFs is expected to be a catalyst for a reversal in ETH’s downtrend.
Some speculate that Wall Street will use these ETFs as a way to gain exposure to Web3’s growth.
Early estimates suggest the ETFs could attract over $15 billion in the initial months, potentially pushing ETH towards $10,000 this cycle.
While Ethereum’s performance compared to Bitcoin has been lackluster, the potential impact of spot ETFs and ongoing network development could paint a brighter picture for ETH in the near future.
This information is not legal advice. Do your own research before making any decisions. Only invest what you can afford to lose and seek independent financial advice if needed. Understand the risks involved before purchasing any cryptoasset