Ethereum’s Weak Performance Stirs Market Concern Amid Bitcoin’s Highs

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In recent weeks, Ethereum, the world’s second-largest cryptocurrency by market cap, has yielded less than stellar results for its investors. The crypto giant has been languishing around the $3,100 price range without making any noteworthy advances, leading to speculation regarding its fundamental weakness that could potentially prompt a price drop.

Despite a high correlation of 95% with Bitcoin, according to Marcus Thielen, Head of Research at 10x Research, Ethereum continues to underperform, specifically when compared to Bitcoin’s recent sterling highs. Thielen underscores some worrying trends concerning Ethereum’s price in a freshly released report.

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In the previous bull market phase, Ethereum had closely allied its growth with emerging sectors stemming from its network, such as decentralized finance (DeFi) and non-fungible tokens (NFTs). These areas fostered an unprecedented demand surge, with the price of ETH soaring as users eagerly procured the token to cover the high transaction fees (or “gas”) on the blockchain.

Yet, Ethereum has been unsuccessful in harnessing this progress, largely due to delayed upgrades crucial for the user experience. Thielen illustrates that the pivotal Dencun upgrade, the solution to Ethereum’s high gas fee dilemma, was late to the party by three years. By the time it rolled out in 2024, users had sought alternatives in Layer 2 networks. Concurrently, other Layer 1 networks experienced booms in user engagement, with Solana being a prime example.

Thielen also discusses how ETH’s frail fundamentals not only jeopardize its prices, but they also have a spillover effect on Bitcoin. He notes, “Ethereum’s weak fundamentals are becoming a roadblock for Bitcoin as they hinder broad fiat inflow into the crypto ecosystem.”

Further extending his scrutiny, Thielen points to the decreasing stablecoin usage on the Ethereum network. Back in 2021, Ethereum reigned supreme in processing stablecoin transactions such as USDT and USDC. However, it appears that exorbitant fees have deterred users, ushering them towards rival networks. Other blockchains, like Tron (TRX), are outpacing Ethereum in stablecoin transactions.

Moreover, Ethereum has resumed its inflationary pattern. Following the London Hard Fork, known as EIP-1559, completed in 2021, Ethereum’s issuance momentarily turned deflationary, as ETH burned rapidly exceeding ETH supplied. But the scene has reversed course as Ethereum’s issuance has outpaced the burn rate. Notably, 74,000 ETH were issued while only 43,000 ETH were burned. This inflation, along with dwindling staking rewards that now stand at 3%, beneath the 5.1% offered by Treasury Yields, has made it challenging for Ethereum to maintain its bullish sentiment.

Taking into account these adverse elements, Thielen advises adopting a bearish outlook on Ethereum. He asserts, “Currently, we would find it more judicious to hold a short position in ETH than a long one in BTC as Ethereum’s fundamentals are delicate, which is not yet mirrored in ETH prices.”

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Melinda Cochrane is a poet, teacher and fiction author. She is also the editor and publisher of The Inspired Heart, a collection of international writers. Melinda also runs a publishing company, Melinda Cochrane International books for aspiring writers, based out Montreal, Quebec. Her publication credits include: The art of poetic inquiry, (Backalong Books), a novella, Desperate Freedom, (Brian Wrixon Books Canada), and 2 collections of poetry; The Man Who Stole Father’s Boat, (Backalong Books), and She’s an Island Poet, Desperate Freedom was on the bestseller's list for one week, and The Man Who Stole Father’s Boat is one of hope and encouragement for all those living in the social welfare system. She’s been published in online magazines such as, (regular writer for) ‘Life as a Human’, and Shannon Grissom’s magazine.