Why is Ethereum outperforming Bitcoin post-Merge?
Why is Ethereum outperforming Bitcoin post-Merge?
The Changing Dynamics of the Blockchain Industry
Key Takeaways: – Ether has underperformed Bitcoin since the Ethereum Merge in September. – Despite the supply of Ethereum falling post-Merge, demand for Bitcoin has overshadowed the lower supply. – Regulatory crackdown and institutional interest in Bitcoin have contributed to the divergence.
One of the most intriguing aspects of the crypto market is the relationship between Ether (ETH) and Bitcoin (BTC). These two leading cryptocurrencies often move in relation to each other, and it is worth re-analyzing this dynamic ten months after the Ethereum Merge.
The Ethereum Merge, implemented in September 2022, brought a significant transformation to the Ethereum network. It transitioned from a proof-of-work mechanism to a proof-of-stake mechanism. On the other hand, Bitcoin remains a proof-of-work blockchain.
This shift has flipped the fundamentals underlying the Ethereum network. A notable change can be observed in the total circulating supply of ETH. Since the Merge, there has been a slight contraction in the supply, indicating a reduction in Ether availability.
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Zooming in on the post-Merge period, the contraction becomes even more apparent. The average monthly supply reduction has been 0.15%, whereas before the Merge, the supply grew at an average rate of 0.41% per month.
Furthermore, the supply of liquid Ether has contracted even further. The introduction of the Shapella upgrade, also known as Shanghai, allowed staked Ether to be sold. Consequently, the amount of staked Ether spiked notably in April 2023. This increase in staked Ether indicates a significant change in the market.
The expectation that increased scarcity would drive Ether’s price higher has not materialized. Following the Merge, Ether has fallen relative to Bitcoin. This unexpected outcome can be attributed to the interplay between supply and demand.
While the supply of Ether has contracted, the demand side of the equation has not kept pace, particularly in comparison to Bitcoin’s demand. This divergence can be attributed to two primary factors: regulatory crackdown and institutional interest.
The regulatory crackdown in the United States has impacted the crypto market. However, Bitcoin has been less affected compared to other cryptocurrencies. This has resulted in Bitcoin’s dominance rising to over 50% of the entire cryptocurrency market cap, up from 42% at the time of the Ethereum Merge.
Bitcoin’s growing dominance can be attributed to the perception that it is carving out its own niche in the space. This sentiment is bolstered by the regulatory environment, with Bitcoin being viewed more favorably than other cryptocurrencies. The influx of Bitcoin ETF applications from major asset managers further strengthens its position.
In contrast, Ether finds itself in a regulatory grey area. While it has not been classified as a security, it has still been impacted by the regulatory blows. This has contributed to Bitcoin’s separation from the crowd and its outperformance compared to Ether.
It is worth noting that the trading history of both Ether and Bitcoin is relatively brief. Additionally, the current macro environment is unprecedented for the crypto market. Therefore, relying solely on past performance may not accurately predict future outcomes.
The Ethereum Merge was highly anticipated, but the market had already priced in much of its impact. The Merge had been in development for a long time, with multiple delays. Consequently, the expected surge in Ether’s price did not materialize to the extent some had hoped.
Despite Ether’s underperformance relative to Bitcoin, it is important to acknowledge that Ether investors have still seen significant gains. Ether is up 57% so far this year, indicating that even though it may trail behind Bitcoin, it remains a valuable investment.
In conclusion, the dynamics of the blockchain industry are constantly evolving. The Ethereum Merge has brought about significant changes, but it has not translated into Ether outperforming Bitcoin. Regulatory crackdowns and institutional interest have played a crucial role in driving this divergence. However, the market is unpredictable, and trends can shift rapidly. As the industry continues to mature, it is essential to closely monitor developments and adapt investment strategies accordingly.
| Key Insights |
|---|
| – Ether has underperformed Bitcoin since the Ethereum Merge |
| – Regulatory crackdown and institutional interest in Bitcoin have contributed to the divergence |
| – The trading history of both Ether and Bitcoin is relatively brief |
| – The macro environment is unprecedented for the crypto market |
| – The Ethereum Merge had already been priced into the market |
| – Despite underperformance, Ether has still seen significant gains |
