Since Ethereum transitioned to the Proof-of-Stake (PoS) consensus model in September 2022, the crypto has underperformed Bitcoin by 44%. This underperformance is notable, especially given the high expectations surrounding “The Merge,” an event that is supposed to improve Ethereum’s efficiency and sustainability.
Ethereum underperforms by 44%! The reasons for this fall against Bitcoin
One of the main reasons for this underperformance is the decline in Ethereum network activity relative to Bitcoin. Cumulative transaction fees on the Ethereum network have been decreasing, partly due to the Dencun upgrade that reduced median transfer fees. In contrast, the Bitcoin network has seen unprecedented levels of transaction activity, mainly driven by new Layer 2 solutions and registrations.
The ETH/BTC price ratio is currently 0.0425its lowest level since April 2021. This figure indicates that, despite the technical improvements brought by “The Merge”, Ethereum has failed to dominate the market as expected. In July, even the approval of Ethereum-based spot ETFs in the United States was not enough to reverse this trend, with a further 18% decline.
Unfavorable supply dynamics and lower transfer fees also contributed to this underperformance. The market value to realized value (MVRV) ratio for the ETH/BTC pair is now at 0.6, meaning Ethereum could fall further before reaching its undervaluation zone, identified at a ratio of 0.45. The last time Ethereum entered this zone, its price was 0.02 against bitcoin, suggesting further downside potential.
A glimmer of hope for Ethereum?
Despite Ethereum's current underperformance, experts predict that the network could surpass Bitcoin by 2029, thanks to its technical improvements and growing adoption.
While “The Merge” was a technical success, it has yet to deliver the expected market performance benefits for Ethereum. Investors seem to be favoring Bitcoin, as evidenced by the data. The current situation therefore underscores the importance of network activity and supply dynamics in the relative performance of cryptocurrencies.
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