Ethereum’s Struggles: Price Lagging, Supply Turning Inflationary
Ethereum has underperformed Bitcoin since 2018-2019 bear markets and continues to lag behind in 2024. The ETH/BTC ratio hits a 3.5-year low, indicating further concerns.
ETH/BTC ratio plummets to 3.5-year low
Fractals suggest potential scenarios based on past patterns but are not foolproof. In previous halving years, Ethereum rebounded in the first quarter following a breakdown. However, current support at 0.05 has held for 3.5 years, suggesting more bearishness.
When the Federal Reserve cut rates in 2019, the ETH/BTC ratio dropped by 22% by the time it stopped, indicating similar risks in 2024 if rate cuts recur. Ethereum’s price performed negatively in those cases, with holding Bitcoin proving more beneficial.
Ethereum supply reverses course and turns inflationary
Post-2022 Merge, Ethereum’s supply decreased due to transaction fee burning (EIP-1559). The supply dropped significantly after shifting from proof-of-work to proof-of-stake, reducing new ETH issuance.
The Dencun upgrade in March 2024 reversed the deflationary trend. New features optimized data storage and reduced transaction fees, decreasing ETH burning. Consequently, Ethereum’s supply rose, adding 213.5K ETH since the upgrade.
Negative ETF Flows Continue
Ethereum ETF approval was expected to boost demand, but instead, ETF outflows are a concern. Grayscale’s ETHE saw massive outflows, overshadowing positive inflows from other ETFs, netting a $465 million outflow.
When demand for ETF shares falls, Authorized Participants redeem shares for Ethereum, selling it on the open market. This process, paired with ETF outflows, could be driving ETH’s price down.
Conclusion
While Ethereum faces a bearish outlook in 2024, it remains a strong asset. Active addresses on its main chain and Layer 2 networks are increasing. Ethereum leads in total value locked (TVL) across DeFi platforms and continues to see developments.
Despite current conditions, Ethereum is likely to regain momentum by 2025 and could outperform Bitcoin in terms of returns in future cycles.
