Ether (ETH) started the year strong but began to decline in mid-March. ETH gained momentum in mid-May amid expectations of a spot Ethereum ETF approval in the US, but underperformed Bitcoin (BTC).
ETH has surged by about 60% over the past 12 months, compared to 87% for BTC in its USD pair.
A new report, Digital Assets: Insights and Market Trends, jointly published by CME Group and Glassnode, sheds light on some of the reasons why ETH underperformed BTC throughout 2024, as discussed below.
Ether will continue its downtrend against BTC in 2024.
According to data from Cointelegraph Markets Pro and TradingView, Ether has experienced a relatively larger correction in 2024, with the largest drop being 31% between March 12 and May 1. In contrast, Bitcoin has lost 23% over the same period.
Zooming in, Ether’s downside profile has seen relatively deeper corrections compared to Bitcoin, with the largest drop so far in the 2022-24 cycle being -42%. Previous cycles have seen corrections exceeding -65% in both the early and late stages of the macro bull market.
The Glassnode-CME Group report also noted that “the ETH/BTC ratio is expected to continue to decline” during the 2023-24 cycle, suggesting that general investor risk appetite for the current cycle remains low.
According to the chart below, the ETH/BTC ratio has been in a downward trend since the merger, indicating a period where Bitcoin outperformed Ethereum, a scenario that continues to this day.
The report cited several reasons for Ethereum’s underperformance, including the approval of a spot Bitcoin ETF in the United States in January 2024 and increasing competition from other proof-of-stake blockchains.
“Nevertheless, the launch of a US spot ETF for Ethereum could be a catalyst for a reversal of the downtrend.”
ETH realized volatility in 2024 remains lower than previous cycles.
Using on-chain metrics from market intelligence firm Glassnode, the report measures the overall profitability of investors by analyzing the Market Value to Realized Value (MVRV) ratio. The MVRV ratio tracks the difference between market capitalization and realized equity, accounting for the average unrealized profit or loss held by the market.
The report said that while the indicator has been steadily improving since October 2023, its current value of 1.8 is still well below the highs of 6.2 and 3.8 seen during the bullish cycles of 2017 and 2021, respectively.
By comparison, the report shows Bitcoin’s MVRV ratio at around 2.5, indicating that the average BTC investor holds a larger unrealized profit than an ETH investor.
This means that investors still value BTC more highly than ETH and would rather invest their money in the pioneering cryptocurrency than in Ether.
This sentiment is shared by K33 Research, which notes that while ETH has mirrored BTC’s performance throughout the year, the ETH/BTC rate has stubbornly traded near three-year lows, indicating that the market “has underestimated Ether’s potential.”
Vetle Lunde, Senior Analyst at K33 Research, writes:
“We believe the market is underestimating the ETH ETF effect and estimate that US ETH ETFs will absorb 1% of the circulating ETH supply.”
Like Glassnode and CME Group, Lunde said he expects “ETH to outperform in the second half of 2024 due to the ETH ETF effect.”
Related: BTC Price ‘Double Top’ Risk – 5 Things to Know About Bitcoin This Week
ETH futures volume lags behind Bitcoin
According to a report by Glassnode and CME Group, futures markets remain the primary source of trading volume in digital asset markets, typically “five to ten times larger than spot volume.”
According to Glassnode data, Ethereum open interest remains high in 2024, reaching an all-time high of $17.09 billion on May 29, but derivatives volumes are still significantly lower than Bitcoin.
High volumes indicate high investor confidence and enthusiasm, which can lead to more buying and higher prices.
The chart below shows that volumes in the futures markets have increased since October 2023. Bitcoin’s daily contract volume was over $34.4 billion, while Ethereum’s was $26.7 billion.
“This volume of daily trading is similar to previous market cycles, but lower than the all-time highs seen in the first half of 2021.”
Despite Ethereum’s underperformance compared to Bitcoin, analysts are bullish on the spot Ethereum ETF, which will see ETH hit new highs, with some speculating that Wall Street is betting on the growth of Web3. Others speculate that the spot Ethereum ETF, which has attracted over $15 billion in its first few months, could see ETH prices climb to $10,000 during this cycle.
This article does not contain any investment advice or recommendations. All investment and trading moves involve risk, and readers should conduct their own research when making decisions.