Key Points
- Bitcoin (BTC) has outperformed Ethereum (ETH) in the past two years, despite both experiencing significant price fluctuations.
- Ethereum’s underperformance against Bitcoin is attributed to several factors including reduced network activity and fees.
Bitcoin (BTC) and Ethereum (ETH) are the largest cryptocurrency assets by market capitalization. However, in the last two years, ETH has not matched BTC’s performance, even though both have experienced significant price changes.
Even though both BTC and ETH recently received approval for Spot Exchange Traded Funds (ETFs), this hasn’t been enough to improve ETH’s performance relative to BTC.
Ethereum’s Struggle Against Bitcoin
Data from CryptoQuant shows that over the past two years, Ethereum has underperformed Bitcoin by 44%. The analysis suggests that ETH’s decline relative to BTC began after The Merge, which transitioned Ethereum from a Proof of Work (PoW) to a Proof of Stake (PoS) consensus mechanism.
Since The Merge, Ethereum has found it difficult to keep up with Bitcoin’s performance. At the time of writing, the ETH/BTC price was at 0.0425, its lowest since April 2021.
Despite the approval of Spot ETFs for both assets in 2024, with Ethereum’s ETF approved in July, this has not helped to improve ETH’s performance against BTC.
Disparity Between Ethereum and Bitcoin
Over the past few months, Ethereum and Bitcoin have shown contrasting trends in network fees and transaction activity. Ethereum’s fees have decreased following its Dencun upgrade, leading to a drop in network activity. Additionally, Ethereum’s relative transaction count has significantly dropped from 27 transactions per second in June 2021 to just 11.
In contrast, Bitcoin has seen an increase in both fees and transactions in recent months. This has been largely due to the introduction of Inscriptions and Runes, which have increased the demand for block space and contributed to the rise in transaction costs on the Bitcoin network.
The decrease in Ethereum fees has also impacted its burn rate, which is linked to its EIP-1559 mechanism. With lower fees, less ETH is being burned, reducing the deflationary pressure on the network and making Ethereum more inflationary.
An analysis of the two-year Market Value to Realized Value (MVRV) ratio for Ethereum and Bitcoin underscores the growing disparity between the two assets. At the time of writing, Ethereum’s MVRV was slightly below zero at -1.16%, while Bitcoin’s MVRV was significantly higher at over 14%.
The MVRV ratio measures the profit or loss of holders based on the difference between the current market value and the realized value of an asset. In this case, BTC holders are making over 14% profit, while ETH holders are recording a loss of over 1%.
