Ethereum’s relative underperformance post-The Merge has caught the eye of analysts and investors alike. According to blockchain analytics firm CryptoQuant, this downturn can be largely attributed to inflationary supply dynamics and decreased network activity. The critical event in Ethereum’s timeline, The Merge, occurred on September 15, 2022, which marked Ethereum’s transition to proof-of-stake. Since then, ETH has lagged behind Bitcoin significantly, with the ETH/BTC ratio dropping to a multi-year low of 0.041, levels not seen since April 2021.
This decline persists even though the U.S. has greenlit several spot Ethereum ETFs, which have not sparked the anticipated investor interest comparable to Bitcoin’s ETF milestones earlier. For instance, while VanEck’s spot ETH ETF continues to operate at a loss, its futures-based counterpart has been shut down due to the ongoing poor performance of ETH.
On-chain metrics from CryptoQuant reveal a stark preference shift among crypto investors from Ethereum to Bitcoin. This shift is evidenced by a significant drop in Ethereum’s spot trading volume, which has dwindled from being 1.6 times that of Bitcoin to just 0.76 of its volume. Moreover, the network activity on Ethereum, especially the transaction fees, has seen a notable decline following the Dencun upgrade in March 2023. This upgrade reduced the fee burn rate, inadvertently feeding into the inflationary pressures on the supply side.
Despite all this the analysts like Eric Balchunas of Bloomberg says we shouldn’t view these as market failures. For example he says comparing a $20 billion asset under management in 8 months to an ETF with only $7 million in assets is not a fair way to measure success and failure in the ETF space.
