Ethereum (ETH) is currently facing a challenging time in the crypto market, with significant selling pressure and fear gripping investors after a steep 23% decline. This drop has brought its price down to yearly lows at $2,200, sparking concerns among market participants about the future performance of the second-largest cryptocurrency.
One major point of concern for investors is the ongoing underperformance of ETH compared to Bitcoin. This trend has been persistent since September 2022, with Ethereum plummeting by 44% against Bitcoin. The dramatic drop has left many investors and traders questioning the reasons behind Ethereum’s struggle and the factors contributing to its lackluster performance in the market.
Factors Affecting Ethereum’s Performance
A recent report from CryptoQuant sheds some light on the factors currently affecting Ethereum’s performance. The report highlights declining on-chain activity, shrinking institutional interest, and the lackluster performance of Ethereum ETFs compared to Bitcoin as key contributors to ETH’s struggles. The ETH/BTC pair is now sitting at 0.0425, its lowest level since April 2021, further emphasizing Ethereum’s underperformance.
Ethereum’s underperformance seems to be closely tied to weaker network activity dynamics compared to Bitcoin. For example, the total transaction fees on the Ethereum network have been on a decline, primarily due to lower fees after the Dencun upgrade. The relative transaction count has also seen a significant drop, falling from a record high of 27 in June 2021 to 11, one of the lowest levels since July 2020. Additionally, Ethereum’s total supply has been steadily increasing since early April, reaching 120.323 million ETH, the highest level since May 2023, which is not supportive of a price increase.
Traders and investors have shown a clear preference for Bitcoin over Ethereum, as evidenced by the decreasing spot trading volume of ETH compared to Bitcoin. Ethereum’s price historically tends to rise relative to Bitcoin when its trading volume outperforms Bitcoin’s. Given these factors, Ethereum may continue to struggle and underperform compared to Bitcoin in the near future if these trends persist.
Currently trading at $2,262, Ethereum faces volatility and uncertainty in the market as it tests local demand near its yearly lows. To regain market strength, it is crucial for ETH to break above its 4-hour 200 moving average at $2,565 and challenge the local highs at $2,600. However, failing to hold support at the yearly low of $2,200 could lead to a deeper correction phase, potentially signaling the start of a bear market for Ethereum. Bulls need to reclaim key levels to prevent ETH from slipping into prolonged bearish territory and regain control of the market.
Ethereum finds itself in a challenging position in the crypto market, grappling with selling pressure, underperformance compared to Bitcoin, and a lack of supportive network dynamics. As investors and traders closely monitor Ethereum’s movements, the future remains uncertain, with the need for key levels to be reclaimed to avoid further downside. Ethereum’s journey ahead will be crucial in determining its long-term trajectory and whether it can regain momentum in the ever-evolving crypto landscape.
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