3 reasons why Ethereum could underperform Bitcoin in the short term – Cointelegraph

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

Some might say this is a technical adjustment after a strong rally. While this partly explains the move, it rules out some critical factors, including the rapid advance of competitors in the smart contract network and the adoption of Bitcoin as the official currency for the first time.

Ether / Bitcoin price at Binance. Source: TradingView

Notice how the ETH / BTC ratio rallied again on June 8, reaching 0.77 despite the price of Ether remaining 36% below its all-time high and close to $ 2,800. To understand what could have been behind the ratio, analysts need to analyze Ether and Bitcoin price factors separately.

Mike Novogratz may have been misinterpreted in his interview

Ether’s bull run has potentially had a head start due to intense praise from institutional investors. Traders could have felt a sense of urgency, known as FOMO, and quickly shifted their Bitcoin exposure to the main altcoin.

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

“All of a sudden you pretty much have decentralized finance and NFTs on Ethereum at the same time, with growth accelerating insanely.”

Novogratz was then asked about the height of the aether, to which he replied:

“You know, it’s dangerous to make predictions about highs. But could it go up to $ 5,000? Of course it could.”

While one Ethereum holder might have interpreted it as a prediction, others might have understood it as a wild guess, likely based on general crypto market conditions.

However, about a week later, a report from Goldman Sachs revealed that the World Investment Bank believed Ether had “a strong chance of overtaking Bitcoin as the dominant store of value.” Interestingly, one of the report’s main quotes comes straight from Novogratz’s interview with the New Yorker.

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

While Ethereum retained its 80% dominance of stuck net worth in Decentralized Finance (DeFi) applications, Binance Smart Chain (BSC) achieved a 40% market share on DEX exchanges.

Daily volume of PancakeSwap DEX compared to the top 10. Source: DeBank

The successful growth of the DeFi industry and non-fungible token (NFT) markets caused intense congestion on the Ethereum network, taking the median fee to $ 37 in mid-May. This bottleneck triggered an exodus of activity to competing networks, and PancakeSwap was in the best position to capture that flow.

Related: Here’s why analyst says Bitcoin will outperform Ethereum in the near term

To make matters worse, major DeFi projects have expanded to Binance Smart Chain, including the Harvest Finance yield aggregator and the 1-inch decentralized exchange aggregator. 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 had a below average performance over the past 30 days as it failed to break through the $ 42,000 resistance on multiple occasions. However, an important milestone was taken when El Salvador became the first country to make Bitcoin legal tender on June 12.

After the Central American country passed the ruling law, a handful of other Central and South American countries began discussing the benefits of going a similar route.

Ethereum is undertaking an overhaul that will change the rate of issuance and the way entities are paid to secure the network by moving away from the proof of work model. Meanwhile, Bitcoin makes sure every upgrade is backwards compatible and maintains its strict monetary policy.

This is the main reason Ether will not outperform Bitcoin over the next 12 months, or at least until there is a better understanding of the dominance of the Ethereum network over smart contracts.

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

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trade move involves risk. You should do your own research before making a decision.