The third quarter revealed a challenging environment for the cryptocurrency market, including low on-chain fees, Bitcoin’s rising dominance, and Ethereum’s struggles with inflation and poor performance.
Ethereum (ETH)’s identity is shifting from a deflationary to an inflationary model, raising questions about its role as a cryptocurrency amid the rise of layer 2 solutions and the growing dominance of Bitcoin (BTC).
Lucas Outumuro, head of research at IntoTheBlock, noted in an October 4
“Although fees rebounded slightly in September, Ethereum’s trend toward substantially lower fees has been a major contributor to ETH’s underperformance as the market effectively rejects the argument for ETH as a currency.”
Lucas Outumuro
Meanwhile, Bitcoin’s market share rose to its highest level since April 2021, even though the price remained mostly stable throughout the quarter, Outumuro added. Ethereum and altcoins continue to hit new annual lows, he added. Meanwhile, Bitcoin fees plummeted 86% during the quarter, reflecting a market unfazed by the decline.
“The price difference between BTC and ETH suggests that one is valued in money and the other is more closely tied to cash flow, even though both fees have plummeted.”
Lucas Outumuro
The Dencun upgrade introducing EIP-4844 had a significant impact on the Ethereum economy. Despite boosting layer 2 trading volume, mainnet fees hit record lows, raising concerns about Ethereum’s deflation story. Fewer fees mean fewer ETH burns, which “results in inflation again after the Ethereum community continued to focus on the deflationary path before that,” Outumuro noted.
Additionally, the ETH/BTC ratio has fallen nearly 30% since the Dencun upgrade, heralding an “identity crisis” for Ethereum, according to Outumuro. At press time, Ethereum is trading at $2,390, more than 50% below its all-time high three years ago.