Despite a warm welcome from Wall Street, Ethereum's native token, ETH, has failed to keep pace with rival cryptocurrencies like Bitcoin and Solana in the current market cycle. As the crypto market experienced a sharp decline last Sunday, ETH's exchange rate against BTC hit an annual low of 0.041. Although assets like ETH have since recovered solidly, the ratio remains at 0.043 at the time of writing.
This trend strikes many as unusual. During bull markets, capital often flows from Bitcoin into riskier, smaller-cap assets, leading altcoins to outperform. Indeed, tokens like Solana and meme coins such as PEPE and WIF have demonstrated this dynamic during Bitcoin's Q1 rally—but ETH has not.
Why Ethereum Is Struggling in This Cycle
Financial analyst Wesley Kress recently noted on Twitter that this shift challenges the long-held belief that network effects alone sustain Ethereum's dominance. He argues that Ethereum's poor performance this cycle is making investors question its future prospects.
However, some analysts believe this pessimistic view is exaggerated. They assert that time will be Ethereum's ally, especially as new spot ETH ETFs gain traction among institutional investors.
The ETF Impact: Expectations vs. Reality
The launch of Ethereum ETFs was theoretically bullish, enabling regulated institutional access to ETH. Yet, according to Jonathan Bier, CIO of FarsideUK, these products may not replicate Bitcoin ETF success.
A significant portion of that success, Bier explains, depended on investors migrating from existing trusts like Grayscale’s GBTC to the new ETFs. He suggests Grayscale’s Ethereum outflows could be more severe due to tax implications from capital gains. Moreover, he notes, "Ethereum investors are less loyal than Bitcoin investors—they often chase the latest technology and trends."
On-Chain and Market Indicators Tell a Story
Throughout the year, Solana has surpassed Ethereum in key on-chain activity metrics. In late July, Solana overtook Ethereum in total transaction fees for the first time.
Other market-related链上指标 also indicate waning investor interest in ETH compared to BTC. According to CryptoQuant, Bitcoin’s "realized cap"—a measure of new capital inflows—has grown by $187 billion year-to-date, while Ethereum’s has increased by $127 billion.
Julio Moreno, Head of Research at CryptoQuant, observed, "Bitcoin has outperformed Ethereum in several fundamental on-chain metrics. For example, the ratio of transactions on Ethereum versus Bitcoin has declined alongside the ETH/BTC price ratio."
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Frequently Asked Questions
Why is Ethereum underperforming Bitcoin and Solana?
Ethereum's underperformance stems from a combination of factors, including stronger capital inflows into Bitcoin, heightened investor interest in newer blockchain platforms like Solana, and concerns about regulatory and tax implications affecting ETF-driven demand.
Will Ethereum ETFs help it catch up?
While ETFs provide institutional access, their immediate impact may be muted compared to Bitcoin’s experience. Success depends on broader market adoption and whether existing trust investors transition to ETF holdings despite potential tax liabilities.
Is Solana really outperforming Ethereum?
Yes, in certain key metrics like transaction fees and network activity, Solana has recently surpassed Ethereum. However, Ethereum maintains advantages in decentralization and security, which appeal to long-term investors.
Should investors still consider Ethereum?
Ethereum remains a foundational layer for decentralized applications and smart contracts. Its ecosystem continues to evolve with upgrades, making it a viable long-term hold despite short-term underperformance.
How do capital gains taxes affect Ethereum ETFs?
Investors selling Grayscale Ethereum Trust shares to buy ETFs may face capital gains taxes, potentially reducing immediate demand. This dynamic is less pronounced with Bitcoin due to differing investor behavior and market timing.
What key metrics should I watch?
Monitor the ETH/BTC ratio, realized capitalization, transaction volume, and fee revenue. These indicators provide insight into relative network health and investor sentiment.