Ethereum Underperforming by 44%! The reasons for this drop compared to Bitcoin

Since Ethereum’s transition to the Proof-of-Stake (PoS) consensus model in September 2022, the crypto has underperformed compared to Bitcoin by 44%.

Since Ethereum's transition to the Proof-of-Stake (PoS) consensus model in September 2022, the crypto has indeed underperformed compared to Bitcoin (BTC) by 44%. This underperformance is particularly striking considering the high expectations surrounding “The Merge”, an event that was supposed to herald a new era of efficiency and sustainability for Ethereum.

One of the main reasons for this underperformance is the decline in Ethereum network activity compared to Bitcoin. Cumulative transaction fees on the Ethereum network have decreased, partly due to the Dencun update which reduced median transfer fees. In contrast, the Bitcoin network has seen unprecedented levels of transactional activity, mainly thanks to new Layer 2 solutions and inscriptions.

The ETH/BTC price ratio is currently at 0.0425, its lowest level since April 2021. This figure indicates that despite the technical improvements brought by “The Merge”, Ethereum has failed to dominate the market as expected. In July, even the approval of spot ETFs based on Ethereum in the United States wasn't enough to reverse this trend, with an additional 18% drop.

Unfavorable supply dynamics and lower transfer fees have also contributed to this underperformance. The ETH/BTC market value to realized value (MVRV) ratio is now 0.6, meaning Ethereum could still fall before hitting its undervaluation zone, identified at a ratio of 0.45. The last time Ethereum entered this zone, its price was 0.02 compared to Bitcoin, suggesting a potential further decline.

Interestingly, despite Ethereum's current underperformance, experts predict that this network could outperform Bitcoin by 2029, thanks to its technical improvements and growing adoption. Although “The Merge” was a technical success, it has not yet delivered the expected market performance benefits for Ethereum. Investors seem to prefer Bitcoin, as the data shows. The current situation thus highlights the importance of network activity and supply dynamics in the relative performance of cryptocurrencies.