In the two years since Ethereum underwent the Merge, its performance against Bitcoin has been on a downward trend. Once considered a powerhouse in the cryptocurrency world, Ether (ETH) is now teetering on the edge of undervaluation. This article will delve into the major factors contributing to Ethereum’s underperformance post-Merge.
Inflationary Supply Dynamics
One of the key reasons behind Ethereum’s struggle is its inflationary supply dynamics. Since transitioning from Proof-of-Work to Proof-of-Stake in September 2022, ETH has lagged behind BTC by 44%. This is evident in the current ETH/BTC price of 0.0425, the lowest level since April 2021. The shift to PoS has not yielded the expected results, with Ethereum failing to keep up with Bitcoin’s performance.
Another contributing factor to Ethereum’s underperformance is its weaker network activity compared to Bitcoin. Analysis has shown that Ethereum’s total transaction fees have been on a decline, signaling reduced network activity. This can be attributed to the Dencun upgrade, introduced in March, which has resulted in a decrease in transaction fees and an inflationary ETH supply. The current total supply of ETH stands at 120.323 million, with circulation levels reaching their highest point since May 2023.
Ethereum is also falling behind Bitcoin in terms of transaction count. While Bitcoin’s transaction count has soared to record highs, driven by various factors like inscriptions, Runes, and layer-2 networks, Ethereum’s transaction count has dwindled. From a high of 27 in June 2021, Ethereum’s transaction count now stands at 11, one of the lowest levels since July 2020. This decrease in activity is a cause for concern and is further exacerbating Ethereum’s underperformance relative to Bitcoin.
Analysts predict that Ethereum’s decline against Bitcoin may continue, especially since it has not yet entered undervaluation territory. Ethereum will only be considered undervalued against Bitcoin when the ETH/BTC Market Value to Realized Value ratio drops to 0.45. With current trends pointing towards further underperformance, Ethereum may face more challenges in the coming months.
Overall, the post-Merge era has not been kind to Ethereum, with a combination of inflationary supply dynamics, weaker network activity, and declining transaction counts contributing to its underperformance. As the cryptocurrency landscape continues to evolve, it will be interesting to see how Ethereum navigates these challenges and strives to regain its position within the market.
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