3 reasons why Ethereum may underperform Bitcoin in the short term


Ether (Ethereum) Price outperforms Bitcoin (Bitcoin) From March 28th to May 15th it rose 173%. The incredible bull market caused the token to reach an all-time high of $4,380. However, as the cryptocurrency market began to fall sharply on May 12, the trend began to reverse, and since then, the performance of Ether has fallen behind by 25%.

Some people might say that this is a technical adjustment after a strong rebound. Although this part explains the move, it excludes some key factors, including the rapid development of smart contract network competitors and the first adoption of Bitcoin as an official currency.

Binance’s Ether/Bitcoin price. Source: TradingView

Note how the ETH/BTC ratio rose again on June 8th, reaching 0.77, although the price of ETH was still 36% below its historical high and was close to $2,800. To understand the factors driving this ratio, analysts need to analyze the price drivers of Ether and Bitcoin separately.

Mike Novogratz may have been misunderstood in his interview

Due to strong praise from institutional investors, Ethereum’s bull market may gain additional support. Traders could have felt a sense of urgency called FOMO and quickly turned their Bitcoin exposure to leading altcoins.

May 13, New Yorker Magazine Published an interview With Mike Novogratz, founder and CEO of Galaxy Digital. In the conversation, Novogratz said:

“Suddenly, you have decentralized finance and NFT at roughly the same time on Ethereum, and they are growing extremely fast.”

Novogratz was then asked how high the ether can reach, and he replied:

“You know, it’s dangerous to make predictions about highs. But can it reach $5,000? Of course.”

Although Ethereum holders may interpret it as a prediction, others may interpret it as a crazy guess, which may depend on general crypto market conditions.

However, after about a week, Goldman Sachs report According to reports, the global investment bank believes that ether is “very likely to replace Bitcoin as the main store of value.” Interestingly, one of the main quotes in the report comes directly from Novogratz’s interview with The New Yorker.

At its peak, Binance Chain controlled 40% of DEX trading volume

Although Ethereum maintains an 80% dominant position in the net value locked in decentralized finance (DeFi) applications, the Binance Smart Chain (BSC) market share on DEX exchanges has reached 40%.

Comparison of PancakeSwap DEX’s daily trading volume with the top 10. Source: DeBank

The successful growth of the DeFi industry and the non-fungible token (NFT) market has led to severe congestion in the Ethereum network, which increased the median fee to $37 in mid-May. This bottleneck triggers the outflow of activities to competing networks, and PancakeSwap is best suited to capture this traffic.

related: This is why an analyst said that Bitcoin will outperform Ethereum in the short term

To make matters worse, important DeFi projects expanded to the Binance Smart Chain, including Harvest Finance with Decentralized exchange aggregator 1inchInvestors quickly realized that this trend may continue, as the competitive smart contract network provides a simple solution for dApps looking for cheaper alternatives.

No country adopts the “Ethereum Standard”

Bitcoin may have underperformed in the past 30 days because it has repeatedly failed to break the $42,000 resistance level.However, when an important milestone was achieved El Salvador becomes the first country to make Bitcoin a legal tender June 12.

After Central American countries formulated their decision-making laws, a few other Central and South American countries began to discuss the advantages of following a similar path.

Ethereum is undergoing a redesign, which will change the issuance rate and how entities can get paid to protect the network by getting rid of the proof-of-work model. At the same time, Bitcoin is ensuring that every upgrade is backward compatible and maintaining its strict monetary policy.

This is the main reason why Ethereum will not surpass Bitcoin in the next 12 months, or at least until the dominance of the Ethereum network in smart contracts is better understood.

Professional investors avoid uncertainty at all costs, and the cryptocurrency market already offers a lot. When competing networks eat Ethereum’s lunch, institutional investors have no reason to ignore the risks.

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