Why the Ethereum/Bitcoin ratio will continue to fall

The Ethereum/Bitcoin ratio is expected to continue declining due to several factors, including the imminent halving event in Bitcoin mining, rising transaction fees, and slow network speeds. As more people flock to the Ethereum blockchain for faster and cheaper transactions, the demand for Bitcoin is likely to decrease, which will further pressure the ETH/BTC ratio downwards. Additionally, the introduction of new DeFi protocols and projects on the Ethereum network is driving up the demand for Ether, further diminishing the relative value of Bitcoin. Therefore, it is likely that the Ethereum/Bitcoin ratio will continue to decline in the coming weeks and months, presenting lucrative opportunities for traders and investors to capitalize on the trend.

The Idea of Ethereum Flipping Bitcoin Losing Steam Amidst Poor Performance

The idea of Ethereum “flipping” Bitcoin by surpassing its market cap has been a long-standing topic of discussion in the cryptocurrency community, especially during the 2017 bull cycle. However, new data suggests that Ethereum might be facing an underperformance period, quelling any notions of a “flippening” in the near future.

One way to value cryptocurrencies is through market cap, which is calculated as the product of the current price and circulating supply. Another method that some proponents prefer is realized cap, which substitutes the current price with the price at which the coins were last moved. This methodology is believed to yield more accurate results by considering lost and irretrievable coins.

Looking at the market and realized cap of Bitcoin and Ethereum since 2016, it is evident that the divergence between the two began around April 2019, but a further narrowing of the two bands occurred in May 2021. Nonetheless, Ethereum’s realized cap has started to decline recently, while Bitcoin’s has remained stable. Moreover, the BTC/ETH dominance ratio, calculated by dividing the BTC market cap by [(BTC market cap + ETH market cap) – 0.765], reveals that the two-year-long period of ETH dominance is coming to an end, with the market gradually favoring Bitcoin.

The ongoing banking crisis narrative has led markets to prepare for higher interest rates, which is generally favorable for risk-off assets. Ethereum is considered a high-beta and risk-on cryptocurrency, which indicates that it might underperform Bitcoin in a risk-off environment.

Fundamental analysis of Ethereum corroborates this notion, with on-chain data showing a decreasing Spot to Futures volume ratio since April 2020, indicating an ecosystem where traders prioritize profit over belief in the ecosystem. Additionally, the percentage change in total ETH addresses has fallen behind BTC in recent months, while the percentage change in total LTC addresses has consistently been higher than ETH and BTC since June 2021, signaling a decline in the growing popularity of Ethereum.

Furthermore, stablecoin and NFT transactions, which make up the majority of gas usage on the Ethereum chain, have recently experienced a general downturn in their popularity. This can be attributed to the increased popularity of Ordinals on BTC and ongoing narratives around the safety and redeemability of stablecoins.

Finally, the Merge narrative, which was expected to drive a bullish trend in the switch to Proof-of-Stake and deflationary tokenomics, has not yielded the desired results for Ethereum. Issues like the Tornado Cash sanctions and costly transactions remain unresolved, hampering Ethereum’s reputation as an uncensorable and decentralized chain. As a result, the ETH/BTC ratio has dropped below its 2017 peak, further indicating the market’s preference for Bitcoin in these uncertain times.

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