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The third quarter revealed a challenging landscape for the cryptocurrency market, marked by low on-chain fees, growing dominance of bitcoin, and ethereum's struggle with inflation and poor performance.
The identity of ethereum (eth) is changing as it moves from a deflationary model to inflation, raising questions about its role as a cryptocurrency amid the rise of Layer 2 solutions and the dominance of bitcoin (btc).
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In x.com/LucasOutumuro/status/1842179185676107958″ target=”_blank”>an item On October 4, IntoTheBlock head of research Lucas Outumuro noted that although on-chain fees saw a slight rebound in September, ethereum continues to deal with substantial fee reductions that have hampered its performance.
“While fees have recovered slightly in September, ethereum's trend toward substantially lower fees is a key contributor to eth's underperformance, as the market effectively rejects the thesis of eth as money.”
Lucas Outumuro
Meanwhile, bitcoin's market share rose to its highest level since April 2021, even as its price remained largely stable throughout the quarter, Outumuro says, adding that ethereum and altcoins continue to hit new yearly lows. Meanwhile, bitcoin rates plummeted 86% during the quarter, reflecting a market that seems unfazed by this drop.
“The divergence between the price of btc and eth, although the fees for both have plummeted, suggests that one of them is being valued as money and the other is more closely tied to its cash flows.”
Lucas Outumuro
The Dencun update, which introduced EIP-4844, has had a huge impact on the ethereum economy. Although it boosted layer 2 transaction volumes, mainnet fees hit record lows, raising concerns about ethereum's deflationary narrative. Fewer fees mean less eth being burned, leading it to become “inflationary again after the ethereum community was consistently focused on its deflationary path before that,” Outumuro noted.
Aside from that, the eth/btc ratio has fallen almost 30% since Dencun's update, indicating an “identity crisis” for ethereum, according to Outumuro. At the time of writing, ethereum is trading at $2,390, more than 50% below its all-time high from three years ago.
