Is Ethereum poised to catch up with Bitcoin and Solana?

With Bitcoin hitting new all-time highs and closing in on the psychologically important $100,000 mark, a major topic of conversation is Ether’s underperformance compared with the rest of the market. According to CoinMarketCap, ETH dominance is down to 12.6% at the time of writing, its lowest level since April 2021. 

The Flippening is further away than ever, with Ether falling more than 50% against Bitcoin since 2021, even dropping below the 2016 cycle high.

Bitcoin has dominated mindshare over the past year, with huge flows of institutional money pouring into the Bitcoin ETFs, says Messari co-founder and chief technology officer Dan McArdle.

“Everyone can understand ‘digital gold’ — the mindshare in TradFi is just almost entirely Bitcoin,” McArdle tells Magazine.

The trend appeared to be headed for a reversal once it became clear the pro-crypto Donald Trump was the winner of the 2024 US presidential election. However, those gains were quickly given back just a few days later. Inflows for the spot Ether ETFs have also been disappointing, although they finally turned positive recently.

While plenty of Bitcoin proponents are ready to declare the death of Ethereum, the reality is that sentiment can quickly turn in the crypto market. One of the last times it looked like Ether may be dying was in September 2019, and the crypto asset surged from a low of 0.01615 BTC to a high of 0.08837 BTC over the next couple of years.

Ethereum is facing competition as a smart contract platform from the likes of Solana, Sui and others this cycle, but the improved regulatory outlook and a potential increase in institutional adoption have market observers suggesting the ETH/BTC trading pair may be near to, or have already hit, its bottom.

How did we get here?

The peak for Ether when priced in terms of Bitcoin was in June 2017, when its market cap hit 83% of Bitcoin’s. A few years later, there was renewed hype over Ethereum competing with Bitcoin in September 2022 as the Merge to proof-of-stake was finalized and the “ultrasound money” meme, associated with the change in Ether’s monetary policy, was at its peak. 

The hope for Ether holders was that lowering the issuance rate and implementing the burning of fees would act as the equivalent of multiple Bitcoin halvings. Despite becoming deflationary for months on end, Ether has continued to trend down since. 

Ethereum proponents argue that the fall in the price of Ether relative to Bitcoin can be explained as a normal part of Bitcoin’s four-year halving cycles, which often see Bitcoin outperform before money rotates into Ether and other altcoins. And Ether investors have still done well, with the coin up roughly 2,000% over the past five years in US dollar terms. Over the past month, it has gained 45%, ahead of Bitcoin’s 38% and SOL’s 34%.

But outside of true believers, holders of non-Bitcoin crypto assets tend to do so in an attempt to outperform the world’s largest cryptocurrency. And Ether has also been underperforming one of its main blockchain competitors, Solana’s SOL, over the past two years. McArdle and Galaxy Digital head of research Alex Thorn both note that outside of institutional interest in Bitcoin, the other main talking point this cycle has been memecoins, which have largely been issued and traded on Solana.

Longtime crypto trader Jordan Fish (also known as Cobie) recently implied that Ethereum may have made an error by trying to be a single solution to multiple crypto use cases.

Thorn has also observed a decline in the sorts of blockchain use cases that powered Ethereum’s boom in the previous cycle.

“The application segments that helped propel ETH in 2021 have declined or seen stagnancy in 2024,” Thorn tells Magazine.

“Gaming, NFTs, decentralized social and even DeFi have seen tepid interest from investors, while Bitcoin has seen significant adoption and growing institutional interest.”

The disappointing inflows to date into spot Ether ETFs compared with spot Bitcoin ETFs back up these observations from McArdle and Thorn — although there are signs of life recently, with the Ether ETFs taking more inflows than the Bitcoin ETFs on November 29.

Additionally, the publicly traded companies and nation states adopting Bitcoin as a treasury asset, by and large, do not appear interested in other crypto assets, outside of Cosmos Health’s announcement that it is adopting ETH as a treasury asset alongside BTC.

ETH also does not have a corporate booster like MicroStrategy, which is issuing billions of dollars worth of equity and convertible debt to massively increase its exposure to Bitcoin as quickly as possible.

Are Ethereum’s emerging competitors a serious threat?

One of the emerging threats to Ethereum this cycle is Bitcoin DeFi, although it’s still in its infancy. Recent technical developments suggest that Bitcoin could make inroads in the space, most notably BitVM, which could potentially improve the viability of Ethereum-esque use cases on secondary layers built on top of the base blockchain.

Various covenants-related soft fork proposals, such as OP_CHECKTEMPLATEVERIFY (CTV) and OP_CAT, could also further strengthen the security model and efficiency of layer-2 networks or ZK-rollups on Bitcoin, in addition to expanding technical capabilities on the base layer.

However, it should be noted that making changes to Bitcoin, even via a backward-compatible soft fork, can be a challenging endeavor. Additionally, various proposals have emerged for implementing covenants on Bitcoin without the need for a soft fork, such as ColliderScript.

That said, Thorn does not see any serious competition for Ethereum at this time. 

“Ethereum is the world’s most decentralized, valuable and mature general-purpose blockchain,” Thorn says.

“I don’t see any blockchain ecosystem, including Bitcoin and Solana, coming close to unseating the Ethereum ecosystem as the mecca for decentralized applications.”

In terms of the potential for Bitcoin layer-2 networks, McArdle sees a long-term development cycle that is unlikely to compete directly with the types of use cases seen on Ethereum and Solana in 2025.

The data certainly shows that Ethereum is still king when it comes to the liquidity and network effects around various DeFi applications. According to DefiLlama, more than half of all the value locked up in various blockchain applications is still found on Ethereum. This point is even more true when also including the many secondary blockchain layers that are now flourishing on top of Ethereum.

The scalability and gas fee issues on the base layer remain, however, leading to increased activity on Solana, particularly for memecoin swaps. While Solana’s memecoin ecosystem built around Solana has been ridiculed for its perceived unseriousness and the downright debauchery of Pump.fun livestreams, McArdle believes the alternative layer-1 blockchain should be taken seriously.

“Ethereum’s biggest competitor is Solana,” McArdle says. “And I don’t think it’s just another flash-in-the-pan L1. Solana’s core technical innovations are important and are the reason why Solana’s UX is much better than on the Ethereum L1, and thus why new retail participants are flocking to Solana.”

McArdle adds that he believes Ethereum’s rollup-based approach will bear fruit over time, but the complex roadmap will take time to mature. In the meantime, issues related to fragmentation and composability will persist. 

Tailwinds for Ethereum in 2025

Despite the poor performance of ETH’s price compared with BTC and SOL over the past couple of years, there are plenty of potential technical, regulatory, institutional and other tailwinds in store for Ethereum in 2025. And for this reason, it’s possible that ETH has already bottomed out in terms of its price in BTC.

“I wouldn’t be surprised,” McArdle says. “Given the new crypto-friendly SEC and treasury secretary, the possibilities for staking yield in the ETFs and more integration of ETH-based DeFi into TradFi generally can drive some new demand for ETH, specifically institutional demand.”

In addition to the increased possibility of staking rewards (currently 3.2% APY) coming to ETH ETFs next year, McArdle says BlackRock and others will likely expand their tokenization efforts on Ethereum more rapidly. “Both may drive new demand and mindshare for ETH,” he adds.

Bloomberg research analyst James Seyffart also brings up the lack of staking in ETH ETFs as part of the reason for a lack of adoption, but he doesn’t see that changing as a sure bet over the next year. “I think if the SEC approves staking for Ethereum ETFs, that could help the ETH ETF issuers, but there’s no guarantee that happens in 2025,” says Seyffart. “And if it does, it might not be until late 2025.”

Seyffart also says that it could be a rise in the ETH price that drives interest in the ETFs rather than the other way around. “It’s kind of like a chicken-or-the-egg problem,” he adds.

In terms of the shifting technical landscape for Ethereum, Thorn predicts that its base-layer revenue and onchain activity will likely continue to lag against other blockchains as rollups take center stage. Past a certain point, the growth of L2s will be a positive for revenue.

“Continued growth and adoption of rollups generating more blob transactions and fees will be how Ethereum retains and grows in value long-term.”

L2 networks, such as the Coinbase-supported Base, are where much of Ethereum’s activity has shifted this cycle. Base has also implemented various enhancements to its user interface, such as the ability to pay gas fees in any ERC-20 token, which helps with the chain’s competitiveness with Solana.

The payments are merely abstracted, however, and the fees themselves are still converted to ETH. The move has highlighted the fact that L2s do not need to use ETH to pay fees, and some argue this could pave the way for fees on some L2s to be paid in native tokens.

Regulatory changes could give Ethereum a boost

The changing crypto regulatory landscape in the US may be the most relevant area to watch, as it will likely impact alternative crypto networks like Ethereum and the tokens launched on top of them more than Bitcoin.

“A shift in the regulatory environment that includes a relaxation of the SEC’s definition of a security and/or accessibility of DeFi would be uniquely supportive of Ethereum and other altcoin ecosystems versus Bitcoin,” says Thorn. 

“A material easing in the regulatory approach to tokens and DeFi could result in a bottoming of the ETH/BTC ratio. Though, that shift could be mitigated or prevented if major Bitcoin initiatives materialize, such as growing corporate or nation-state adoption of BTC.”

It’s still unclear what Trump’s election victory will mean in terms of crypto policy at the national level, says Delphi Ventures general counsel Sarah Brennan.

“There is still significant uncertainty at the moment because we are both waiting to see if the outgoing admin tries to do some last-minute damage and also looking for Trump’s final picks at the agency level as well as who serves as interim chair,” Brennan tells Magazine.

At the time of writing, reports were emerging that Trump is preparing to nominate Libertarian pro-crypto former commissioner Paul S Atkins as SEC chair, which would provide a boost for the industry and Ethereum.

But Brennan warns there are concerns that Gensler could push forward with more enforcement actions before he departs on Jan. 20, or the Biden administration could finalize a broker rule for DeFi applications prior to leaving office. However, Brennan adds, “I remain cautiously optimistic that we are entering a new phase where we can engage in constructive dialogue at the agency level.”

The fact that many in the Trump administration appear heavily influenced by Bitcoin maximalists, Brennan says, might tilt the benefits of the crypto regulatory shift to the world’s largest crypto asset. But with Trump’s DeFi project building on Ethereum and Ripple CEO Brad Garlinghouse being floated as a potential candidate for the country’s first crypto czar, the early signs seem broadly supportive of a range of tokens.

The counterargument to an improved regulatory environment being bullish for Ethereum is that it would also benefit and level the playing field for other projects, including Solana. Indeed, four Solana ETF applications have already been sent to the SEC this year in anticipation of a potential mood swing for crypto under a Trump administration. “One interesting thing to watch is whether the new SEC means that (Ethereum’s) regulatory moat will disappear relatively soon,” says McArdle.

“Until now, it’s been the case that only BTC and ETH could really penetrate into TradFi given the SEC’s stance on Solana and others being securities, allegedly. But now the door is likely wide open. Can Ethereum capitalize on its current institutional advantage and ‘Lindy effect’ before other assets gain traction and confidence with TradFi? We’ll see!”

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Kyle Torpey

Kyle Torpey has been covering Bitcoin and crypto since 2014. Notably, he covered Bitcoin’s blocksize war at Bitcoin Magazine and Forbes. Over the years, his work has also been published in Fortune, Vice, Investopedia, and many other media outlets