- Anticipation of a spot Bitcoin ETF being approved has driven up the price of Bitcoin in the past week.
- Meanwhile, Ethereum’s lack of a “compelling long-term narrative” and concerns related to Ethereum staking and its implications for the network have moderated its gains.
Ethereum’s price in Bitcoin, as tracked by a trading pair called ETHBTC, continues to lose ground amid hype around potential Bitcoin spot ETF approval in the US.
ETHBTC fell to 0.051 yesterday, falling to its lowest level this year and slipping close to its June 2022 lows of around 0.049, per TradingView. Traders monitor ETHBTC to gauge the strength of Ethereum against the benchmark cryptocurrency, Bitcoin.
The last time this ratio dipped below 0.049 was prior to May 2021.
Over the past week, Bitcoin has gained nearly 20% to reach a new yearly peak of $35,157 on Coinbase, likely due to optimism around Bitcoin ETF approval in the US.
On the other hand, Ethereum’s price had a more modest increase of 13.4% during the same period. The asset was last trading 15% lower from its 2023 peak of $2,140.
Bitcoin and Solana-based investment products saw inflows of around $112 million and $43 million, respectively, compared to $4.7 million in outflows from Ethereum-based funds this month to date, per a report from digital asset management firm CoinShares published on Monday.
In fact, Ethereum has experienced the highest outflows this year, totaling $119 million, followed by Tron, per the CoinShares’ report.
James Butterfill, the head of research at CoinShares, attributed the positive flows in Bitcoin to “anticipation of a spot Bitcoin ETF” and “continued concerns over Ethereum.”
Recently, the market has grown hopeful around an approval by the US securities regulator in light of the recent court victory by Grayscale over a previous rejection and a flurry of applications for Bitcoin spot ETF by traditional finance heavyweights such as BlackRock, Fidelity, and Ark Invest.
Bitfinex analysts told DL News that the “primary bullish narrative for the market has been ETF products” while Ethereum has lacked a “compelling long-term narrative.”
They added “every bullish narrative for Ethereum has resulted in less significant spikes for the Bitcoin-Ethereum ratio.”
Benjamin Jarvis, co-founder of analytics outlet JLabs Digital told DL News that, “Institutions might feel more comfortable investing in a Bitcoin spot ETF because they perceive it as less risky compared to Ethereum futures.”
Earlier this month, six Ethereum-futures-based ETFs launched in the US. However, their opening trading was sluggish, and they haven’t garnered significant demand since their introduction.
Moreover, the Bitfinex analysts added that “we are in the early phases of a bull market where it is normal for Bitcoin to move up first and then allow a rotation of capital as investors search for lagging beta plays” like Ethereum.
Concerns over Ethereum
CoinShares analyst Luke Nolan discussed various concerns related to Ethereum staking and its implications for the network in a recent report.
Ethereum staking refers to securing the network’s proof-of-stake consensus mechanism by depositing Ether into the staking contract and earning rewards in return.
Nolan raised centralisation concerns over Lido, the leading liquid staking derivative platform on Ethereum, which commands a dominant share of 31.5% of all the staked Ether, or 8.7 million Ether— worth $15.6 billion — per a Dune dashboard by Hildobby, the pseudonymous head of data at crypto venture fund Dragonfly.
He also addressed the concern of the growing number of validators. More validators mean more load on the existing validators, which can impact the network’s performance and require significant hardware upgrades.
An increase in the number of validators also reduces the yields for individual validators, which can lead to an exodus of Ether stakers.
Additionally, Nolan suggested the possibility of an “untested economic regime” where the staked Ether market cap becomes larger than the unstaked Ether market cap, which could raise unfounded risk.
Lastly, the recent drop in fees and Ethereum turning inflationary also contribute to the lack of demand.
Ethereum’s supply has grown at a rate equivalent to 0.37% per annum over the last 30 days as the staking rewards exceeded the amount of Ether burnt in transaction fees, according to Ethereum data tracker ultra sound money.
Correction: The article has been updated to reflect that 8.7 million Ether was staked via Lido.