In recent months, Ethereum [ETH] has shown a lackluster performance, particularly when compared to Bitcoin [BTC]. Despite being a dominant player in the world of alternative cryptocurrencies, there were high hopes pinned on ETH leading a bullish surge among altcoins. However, it appears that Ethereum is currently struggling to keep pace with the overall market trends.
Since April 2023, the ETH/BTC chart has been consistently trending downward. While it managed to hold ground above the June 2022 lows of 0.049 until April 2024, the continuous downward trajectory over the past six months has now pushed ETH/BTC to levels not witnessed since April 2021.
Factors Contributing to the Depreciation of Ethereum
Long-time Ethereum investors are becoming increasingly concerned about the rapid erosion of Ethereum’s value compared to Bitcoin. One significant factor contributing to this decline is the inflationary pressures that have emerged within the network post the Dencun upgrade implemented in March 2024.
The introduction of EIP 4844 as part of the Dencun upgrade led to a substantial reduction in the transaction fees associated with Layer 2 transactions. While this was beneficial for users, the consequent decrease in network fees resulted in a reduced rate of ETH being burned, thereby rendering the token somewhat inflationary over the past half-year.
These dynamics are clearly evident in the upward trajectory of the ETH supply chart.
Encouraging Trends in Optimistic Activities
An escalation in transaction volumes was observed within the Arbitrum [ARB] and Polygon Ecosystem Token [POL], with Optimism [OP] emerging as the standout performer. This surge indicated a growing preference for Layer 2 solutions among users.
In particular, the exceptional performance of Optimism can be largely attributed to the launch of Coinbase’s Base Layer 2 solution built on top of the Optimism Superchain.
The persistent inflationary pressures affecting ETH and its relative performance against Bitcoin have raised questions about Ethereum’s suitability as a form of currency. While a surge in transactional activities could alleviate these concerns, the lack of confidence in ETH within the market is vividly illustrated by the underwhelming performance depicted in the ETH/BTC chart.