Ether has underperformed bitcoin by 44% since switch to proof-of-stake: CryptoQuant

Ether has underperformed bitcoin by as much as 44% since the Ethereum ETH -2.99% blockchain's  'merge' to proof-of-stake almost two years ago, according to analysts.

"Next week will mark two years since Ethereum switched to a proof-of-stake network, an upgrade known as The Merge. Since then, Ethereum has underperformed bitcoin by 44%," CryptoQuant analysts said.

The analysts added that ether has continued to underperform bitcoin even after Ethereum spot exchange-traded funds (ETFs) were approved in the U.S. on July 23, and that the ETH/BTC price is currently 0.0425, the lowest level since April 2021.

Bitcoin is not the only cryptocurrency that ether has underperformed since switching to proof-of-stake, according to CryptoQuant analysts. "Ethereum has also underperformed altcoins like Solana and BNB since 'the merge,' down 53% and 18% respectively," CryptoQuant Head of Research Julio Moreno told The Block.

The CryptoQuant analysts added that ether could decline further relative to bitcoin, according to the analyst. "Ethereum could fall further with respect to bitcoin as ether is still above undervaluation territory. We estimate that ether would need to fall to about 0.02 in terms of bitcoin, a 50% decline, for it to enter undervaluation territory," they said.

Reasons for Ethereum's underperformance compared to bitcoin

CryptoQuant analysts said a key reason for the underperformance could be due to weaker network activity dynamics. "Ethereum underperformance seems to be correlated with weaker network activity dynamics compared to bitcoin," they said.

One example given is Ethereum’s network total transaction fees, which have continued to decline compared to those for Bitcoin. Thursday's CryptoQuant report said this decline could be mostly attributed to lower transaction fees on Ethereum after the Dencun upgrade . Additionally, Ethereum's transaction count relative to Bitcoin's has dropped to one of its lowest levels since July 2020.

CryptoQuant analysts also highlighted unfavorable supply dynamics for ether's price. "The total supply of ether has been constantly growing since early April, shortly after the network’s latest upgrade, Dencun. The total supply is now at 120.323 million ether, the highest since May 2023," analysts added.

The CryptoQuant analysts said traders and investors have shown a preference for relatively more exposure to bitcoin than to ether. This is evident in the decline of the relative spot trading volume of ether compared to bitcoin, with the ETH/BTC spot trading volume ratio decreasing from 1.6 to 0.76 in the past week," they added.