Bitcoin is rising like a rocket, why is Ethereum moving like a tractor?

Why is Ethereum lagging behind as Bitcoin skyrockets?

Author: LianGuaiBitpushNews Mary Liu

Due to the speculation of the approval of a Bitcoin ETF in the United States, Bitcoin has rebounded for two consecutive weeks, while Ethereum has seen a more moderate increase. The price of Ethereum relative to Bitcoin (ETH/BTC trading pair) continues to decline.

According to TradingView’s data, as of the time of writing, the ETH/BTC ratio is 0.05182, the lowest since mid-2021, close to the low point of about 0.049 in June 2022. The last time this ratio fell below 0.049 was before May 2021.

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Historical data shows that the high point of the ETH/BTC ratio usually occurs during bullish periods when Ethereum performs well, reaching as high as 0.085 at one point. However, the situation has reversed in bear markets, with Bitcoin usually taking the lead.

At the same time, Bitcoin continues to outperform most altcoins, driving up its dominance. Bitcoin’s share of the total cryptocurrency market capitalization has risen to 54.4%, the highest level since April 2021. A ratio of over 50% means that Bitcoin’s market value exceeds the sum of all other cryptocurrencies.

The chart above shows that the index has fluctuated between 39% and 49% for the past two years, breaking out of that range in mid-June. This breakthrough coincided with the news of BlackRock’s application for a spot BTC ETF in the United States, when the price of Bitcoin rose above $30,000.

Why is Bitcoin’s increase so far ahead?

An analyst pointed out that Bitcoin’s outperformance is due to the speculation of spot ETFs and the safe-haven narrative.

Recently, with Grayscale’s recent legal victory and traditional financial giants such as BlackRock, Fidelity, Ark Invest, etc., applying for Bitcoin spot ETFs, there is a lot of enthusiasm in the community. Industry insiders believe that the approval of ETFs by the U.S. Securities and Exchange Commission (SEC) is almost certain, which could unleash a wave of new demand for Bitcoin.

Noelle Acheson, a cryptocurrency market analyst and author of Crypto Is Macro Now, stated in her daily newsletter that the rise of Bitcoin’s dominance can be explained by market cycles and the attractiveness of Bitcoin as a lower-risk asset compared to altcoins (including ETH).

Acheson points out, “Bitcoin tends to lead the cryptocurrency market in the early stages of a cycle, only losing its dominance when investors become more accustomed to the risk curve and smaller altcoins emerge.”

Ethereum lacks upward narrative

According to a report released by digital asset management company CoinShares on Monday, investment products based on Bitcoin and Solana have seen inflows of approximately $112 million and $43 million respectively this month, while funds based on Ethereum have seen outflows of $4.7 million.

In fact, according to CoinShares’ report, Ethereum has seen the highest outflow of funds this year, totaling $119 million, followed by Tron.

CoinShares’ research director James Butterfill attributes the difference in funds between BTC and Ethereum to people’s “expectations for a spot Bitcoin ETF” and “ongoing concerns about Ethereum.”

Noelle Acheson also points out that Bitcoin has the advantage of an ETF and a narrative of being a safe haven, while Ethereum faces unfavorable factors such as regulatory indifference and upgrade uncertainties. Although Ethereum has always been at the forefront of the decentralized finance (DeFi) movement and pioneered smart contracts, network congestion and high transaction fees have been ongoing issues, especially with the emergence of new competitors in the field, leaving Ethereum lacking a compelling narrative.

An analyst at Bitfinex stated in a report that the main bullish narrative in the market is BTC ETF products, while Ethereum lacks a convincing long-term narrative.

Earlier this month, six Ethereum-based futures ETFs were launched in the United States. However, the opening trading was lackluster and failed to generate the same level of excitement and trading volume as the first BTC futures ETF, ProShares BITO, launched in October 2021.

David Duong, research director at Coinbase, said that the total trading volume of top ETH futures ETFs on the first day was less than $1.5 million. In stark contrast, according to Bloomberg data, BITO’s trading volume on its founding day exceeded $1 billion. In addition, the net inflows into these ETH futures ETFs are less than 2% of BITO.

Benjamin Jarvis, co-founder of analysis firm JLabs Digital, said in an interview with Bloomberg, “Institutions may be more willing to invest in spot Bitcoin ETFs because they consider Bitcoin spot less risky than Ethereum futures.”

Normal capital rotation?

Data shows that BTC prices have risen by 32% in the past month, while ETH has only risen by 12%. Looking at a longer timeframe, Bitcoin’s price has doubled this year, while ETH has risen by about 50%.

Technical indicators analyzed by Crypto Daily show that Ethereum currently faces resistance at $1,794 and $1,955, while support is determined at $1,308 and $1,470, suggesting that Ethereum may find some support around these price levels. A report from Bitfinex states that the market is in the early stages of a bull market, with Bitcoin rising first and then a capital rotation occurring as investors seek out beta trades such as Ethereum, which is normal.

Cryptocurrency lending institution, Ledn, Chief Investment Officer John Glover believes that historically, when the price of Bitcoin rises, funds begin to flow into altcoins. This means that the launch of one or more spot Bitcoin ETFs is likely to trigger the next bull market in the entire crypto ecosystem.

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