Bitcoin (BTC) and Ethereum (ETH) continue to dominate the cryptocurrency market in terms of market capitalization. However, over the past couple of years, ETH has lagged behind BTC in terms of performance, despite both digital assets experiencing significant price volatility.
Although both BTC and ETH recently witnessed the approval of Spot Exchange Traded Funds (ETFs), this development has failed to reverse the relative underperformance of the altcoin.
Ethereum’s Decline vis-à-vis Bitcoin
Recent data from CryptoQuant reveals that Ethereum has faced a 44% underperformance compared to Bitcoin over the last two years. This analysis suggests that ETH’s downturn relative to BTC began following The Merge, which marked Ethereum’s transition from a Proof of Work (PoW) to a Proof of Stake (PoS) consensus algorithm.
Since then, Ethereum has struggled to keep up with Bitcoin’s pace.
As of now, the ETH/BTC price stands at 0.0425, representing its lowest level since April 2021.
Despite the positive news of Spot ETF approvals for both assets in 2024—with Ethereum’s ETF getting the green light in July—the approval has had little impact on reversing ETH’s lagging performance against BTC.
Factors Contributing to the Ethereum/Bitcoin Disparity
Ethereum and Bitcoin have exhibited differing trends in network fees and transaction activities in recent months.
Data indicates that Ethereum’s fees have decreased following the Dencun upgrade, resulting in reduced network activity. Furthermore, Ethereum’s transaction count has notably dropped from a peak of 27 transactions per second in June 2021 to just 11, marking one of the lowest levels since July 2020.
In contrast, Bitcoin has experienced a surge in both fees and transactions in recent months. This upturn is primarily attributed to the introduction of Inscriptions and Runes, driving up the demand for block space and elevating transaction costs on the Bitcoin network.
The decline in Ethereum fees has also impacted its burn rate associated with the EIP-1559 mechanism. With lower fees, the amount of ETH burned has decreased, alleviating the deflationary pressure on the network and making Ethereum more inflationary.
This shift contrasts with previous periods where high network fees led to a higher burn rate, consequently reducing the overall ETH supply.
Evaluating the Two-year MVRV of ETH/BTC
An analysis of the two-year Market Value to Realized Value (MVRV) ratio for Ethereum and Bitcoin reveals a widening gap between the two assets.
Currently, Ethereum’s MVRV stands slightly below zero at -1.16%, while Bitcoin’s MVRV is significantly higher at over 14%.
This discrepancy in MVRV ratios underscores the extent to which ETH has lagged behind BTC in terms of performance.
The MVRV ratio measures the profit or loss of holders based on the variance between the current market value and the realized value of an asset. In this scenario, BTC holders are enjoying a profit margin of over 14%, while ETH holders are facing a loss of more than 1%.