These factors have driven Ethereum's underperformance against Bitcoin since the merger

Since ethereum underwent a meltdown two years ago, its performance relative to bitcoin has declined significantly. Having gradually lost its reputation as ultra-safe money, Ether (eth) is now just a few steps away from falling into undervalued territory.

Blockchain analytics platform CryptoQuant has identified The main drivers of ethereum’s poor performance since the merge include inflationary supply dynamics and weaker network activity compared to bitcoin.

ethereum's underperformance relative to bitcoin

On September 15, 2022, ethereum switched from a proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) one. Since then, the native token has underperformed btc by 44%. This is evident in the eth/btc price, which currently sits at 0.0425, its lowest level since April 2021.

The underperformance worsened this year, even after the United States… ethereum Spot Exchange-Traded Funds (ETFs) Approved More than a month ago, similar funds approved for bitcoin earlier this year boosted demand so quickly that btc rose to a new all-time high about two months later.

On-chain data indicates that crypto investors prefer higher exposure to bitcoin over ethereum, which can be seen in the declining eth spot trading volume relative to btc. The figure, which showed eth spot trading volume was initially 1.6 times that of bitcoin, fell to 0.76 last week.

CryptoQuant analysts found that ethereum’s poor performance correlates with weaker network activity than bitcoin. ethereum’s total transaction fees have continued to decline compared to bitcoin. This decrease in transaction fees is one of the effects of the Dencun upgrade, which went live in March and introduced data blocks to the network.

ethereum could fall even further

Another effect of Dencun is that the eth supply is becoming inflationary due to a reduced fee burn rate. The total supply of eth now stands at around 120.323 million, after a steady increase since April. The current amount of eth in circulation has been at its highest level since May 2023, and at this rate, the supply could return to its pre-merge level in about three months.

Additionally, ethereum is underperforming bitcoin in terms of transaction volume. While bitcoin’s transaction volume reached all-time highs this year thanks to inscriptions, runes, and layer-2 networks, ethereum’s has fallen from a high of 27 in June 2021 to 11, one of its lowest levels since July 2020.

Unfortunately, analysts believe that ethereum could continue to fall relative to bitcoin because eth is still above undervalued territory. ethereum will be officially considered undervalued against bitcoin when the ratio of eth/btc market cap to realized value drops to 0.45.

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