3 reasons Ethereum Bitcoin may underperform in the short term


The price of Ether (ETH) outperformed Bitcoin (BTC) by 173% from March 28 to May 15. The incredible bull made the token hit an all-time high of $ 4,380. However, when the cryptocurrency markets started a sharp decline on May 12, the trend began to reverse, and since then Ether has underperformed by 25%.

Some might say it’s a technical adjustment after a strong rally. While this partially explains the move, it rules out some critical factors, including the rapid advance of competitors from smart contract networks and the initial introduction of Bitcoin as the official currency.

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Ether / Bitcoin price at Binance. Source: TradingView

Notice how the ETH / BTC ratio rebounded again on June 8, hitting 0.77, despite the price of ether remaining 36% below its all-time high and hovering near $ 2,800. To understand what might have influenced the ratio, analysts need to analyze the price drivers of Ether and Bitcoin separately.

Mike Novogratz may have been misinterpreted in his interview

Ether’s bull run may have got an extra leg due to intense praise from institutional investors. Traders could have felt a sense of urgency known as FOMO and immediately shifted their Bitcoin exposure towards the leading altcoin.

On May 13th, New York magazine published an interview with Mike Novogratz, the founder and CEO of Galaxy Digital. In an interview, Novogratz said:

“Suddenly you have decentralized finances and NFTs both on Ethereum roughly at the same time, with wildly accelerated growth.”

Novogratz was then asked how much higher ether could reach, to which he replied:

“You know, predicting highs is dangerous. But could it get to $ 5,000? Of course it could.”

While one Ethereum holder may have interpreted this as a prediction, others may have taken it as a wild guess, likely depending on general crypto market conditions.

However, about a week later, a report from Goldman Sachs revealed that the global investment bank believed ether had a “high chance of overtaking Bitcoin as the dominant store of value.” Interestingly, one of the main quotes in the report comes straight from Novogratz’s interview with the New Yorker.

At its peak, Binance Chain controlled 40% of DEX volume

While Ethereum has maintained its 80 percent dominance of net worth in decentralized financial (DeFi) applications, Binance Smart Chain (BSC) has achieved a 40% market share on DEX exchanges.

Daily volume of the PancakeSwap DEX vs. Top 10. Source: DeBank

The successful growth of the DeFi industry and non-fungible token (NFT) markets resulted in severe congestion on the Ethereum network and increased media charges to $ 37 in mid-May. This bottleneck sparked an exodus of activity into competing networks, and PancakeSwap was best placed to capture this flow.

Connected: Because of this, one analyst says Bitcoin will outperform Ethereum in the short term

To make matters worse, important DeFi projects have been expanded to include Binance Smart Chain, including the earnings aggregator Harvest Finance and the decentralized exchange aggregator 1inch. Investors quickly realized that the trend could continue as the competing smart contract network offered a simple solution for dApps looking for cheaper alternatives.

No country adopts the “Ethereum standard”

Bitcoin may have underperformed in the past 30 days by failing to break the $ 42,000 resistance multiple times. However, an important milestone was reached when El Salvador became the first country to introduce Bitcoin as legal tender on June 12th.

After the Central American country passed the decision-making law, a handful of other Central and South American countries began to discuss the benefits of a similar path.

Ethereum is undergoing a reshaping that will change the spending rate and the way companies are paid to secure the network by moving away from the proof-of-work model. Meanwhile, Bitcoin ensures that every upgrade is backwards compatible and maintains its strict monetary policy.

This is the main reason Ether won’t outperform Bitcoin for the next 12 months, or at least until there is a better understanding of what the dominance of smart contracts will be on the Ethereum network.

Professional investors avoid uncertainty at all costs, and the cryptocurrency markets already offer a lot of it. There is simply no reason for institutional investors to ignore the risks while competing networks eat Ethereum’s lunch.

The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement carries risks. You should do your own research when making a decision.