Ethereum (ETH), the second-largest cryptocurrency by market cap, has been facing a challenging year in 2024, especially compared to Bitcoin (BTC).
While Bitcoin has enjoyed a substantial rise of about 36% this year, Ethereum has remained almost stagnant, only managing a meager 0.02% increase since the start of the year.
This performance gap between the two biggest names in crypto has sparked much discussion.
Let’s examine the three main reasons Ethereum struggles to keep pace with Bitcoin and consider what the future could hold for ETH.
Reason 1: Ethereum Struggles Against Its Bitcoin Pair (ETH/BTC)
The first significant issue is that Ethereum has significantly underperformed compared to Bitcoin over the last 90 days. To put it into perspective, Ethereum’s price dropped by 34% in this period, while Bitcoin’s price fell by only 15%. This stark difference has led to a decline in the ETH/BTC ratio — which compares the price of Ethereum directly to Bitcoin — hitting its lowest point in years.
So, what does this drop in the ETH/BTC ratio mean? It shows that demand for Ethereum has been much weaker than demand for Bitcoin. Investors favor Bitcoin over Ethereum, and one primary reason for that could be the rise of Bitcoin exchange-traded funds (ETFs).
Earlier this year, in January 2024, the US Securities and Exchange Commission (SEC) approved several spot Bitcoin ETFs. These ETFs have been highly successful, drawing in much investor interest and increasing Bitcoin’s price.
On the flip side, spot Ethereum ETFs have not seen nearly as much success. According to data, Bitcoin ETFs now account for 8% of Bitcoin’s trading volume, while Ethereum’s ETFs only make up 1% of ETH’s volume. This gap in demand has undoubtedly contributed to Ethereum’s underperformance.
Reason 2: Bitcoin’s Growing Market Dominance
Another important factor negatively impacting Ethereum is Bitcoin’s rising dominance in the overall cryptocurrency market. Bitcoin’s market dominance is essentially its share of the total market capitalization of all cryptocurrencies. When this number increases, more money flows into Bitcoin than other coins, including Ethereum.
In August 2024, Bitcoin’s market dominance reached a 40-month high of 58%. This means that Bitcoin is not only outperforming Ethereum, but it’s also overshadowing most altcoins. Investors are choosing to allocate more of their funds to Bitcoin because they view it as a safer, more reliable investment in the often unpredictable world of crypto.
When Bitcoin’s dominance rises, it tends to pull attention and capital away from other cryptocurrencies. So, even though Ethereum remains a popular platform for decentralized applications (DApps), smart contracts, and NFTs, it’s struggling to compete with Bitcoin’s growing influence. As Bitcoin continues to capture more market share, Ethereum finds it harder to maintain investor interest and support.
Related: What Is Bitcoin Dominance?
Reason 3: Decline In Ethereum’s On-Chain Activity
The third reason behind Ethereum’s lagging performance is the noticeable decline in its on-chain activity. On-chain activity refers to the number of transactions, user interactions, and overall usage of a blockchain network. It is a key indicator of how much demand there is for the underlying token, in this case, Ether (ETH).
One of the most telling metrics for on-chain activity is the number of active addresses on the Ethereum network. Currently, the 30-day average of active Ethereum addresses sits at around 430,250, which is a 7.7% decrease from three months ago. To put this in context, back in May 2021, Ethereum saw as many as 686,350 active addresses daily, showing just how much usage has slowed down over time.
In addition, the use of Ethereum’s decentralized apps (DApps) is also shrinking. Data from DAppRadar reveals that Ethereum’s DApp usage, measured by unique active wallets (UAWs), has declined by 19% over the past 30 days.
This decline in DApp activity is concerning, especially considering that competing blockchains like Solana and Tron have seen explosive growth in the same period. Solana’s UAWs have jumped by 257%, and Tron’s have surged by a staggering 343%. This suggests that users and developers increasingly turn to other blockchains, further reducing Ethereum’s market share.
Reason 4 (Bonus)
But here’s a little fun theory that has been floating around the crypto community lately — some people are saying that Ethereum’s price is struggling because Vitalik Buterin, the co-founder of Ethereum, finally got a girlfriend. Could it be that his attention is elsewhere? Who knows! But it sure is a funny coincidence, right? 😄
Final Thoughts
For more in-depth technical analysis like this one, make sure to subscribe and hit the notification bell on UseTheBitcoin’s YouTube channel. We post daily videos covering the crypto markets, so don’t miss out!
