Ether-Bitcoin Ratio Slides to Lowest Since April 2021. Here’s Why

The ether-to-bitcoin ratio fell to a three-year low, bringing year-to-date losses to nearly 16%.

Various factors are responsible for Ethereum’s underperformance, such as uncertainty regarding the launch of spot ETH ETF in the US and the growth of Ethereum killers such as Solana.

The ratio between the dollar prices of Ether {{ETH}} and Bitcoin {{BTC}} continues to decline, amplifying year-to-date losses as suggested by the bearish death cross pattern from a month ago.

ETH/BTC fell to 0.04563 shortly before press time on crypto exchange Binance, falling to its lowest level since April 2021, according to charting platform TradingView. This year the rate has fallen by around 16%, indicating a bias towards Bitcoin or the leading cryptocurrency by market cap.

The drop to three-year lows follows a decline in demand for exchange-traded products (ETPs) linked to ether.

Global Ethereum ETPs recorded net outflows of about $63.5 million last week, while Hong Kong-listed exchange-traded funds (ETFs) suffered the most losses, according to Bloomberg data cited by ETC Group in its weekly report. Meanwhile, Bitcoin ETPs gained $92.5 million last week.

Several factors, including competing tier 1s and ongoing uncertainty regarding the launch of spot ETH approvals in the US, are likely responsible for ETH’s fall out of favor with investors.

“The approval of spot Bitcoin ETFs in the US has strengthened Bitcoin’s narrative as a store of value and its status as a macro asset. On the other hand, open questions remain regarding ETH’s fundamental position within the crypto sector. Competing layer 1s (L1s) like Solana are weakening Ethereum’s position as the ‘go-to’ network for decentralized application (dApp) distribution, Coinbase Institutional’s Research analyst David Han said in a note on Wednesday.

Solana’s share of total DEX volume. (DefiLlama, Coinbase)

Solana’s share of total decentralized exchange volumes increased tenfold in one year, from 2% to 21%, eating into Ethereum’s market share.

The U.S. Securities and Exchange Commission (SEC) greenlit nearly a dozen spot BTC ETFs in January. Since then, these funds have seen net inflows of about $12 billion, according to data source Farside Investors.

Approval of spot ETFs tied to Ether would open up a similar pool of capital for Ethereum’s native token, but it’s unclear when the SEC will approve it.

Investors at decentralized betting platform Polymarket think there is only a 10% chance that the SEC will approve a spot ETF on or before May 31. The regulator must decide by May 23 whether to approve VanEck’s application to launch a spot Ethereum ETF. BlackRock’s application deadline is June 23.

The story continues

The SEC is seeking reasons to reject ETH ETF applications from BlackRock and others on the grounds that they are improperly filed as commodity-based trust shares and do not qualify if they own the security, according to financial attorney Scott Johnsson.

I realize this is widely considered a possibility, but this is your official notification that the SEC is considering the security question for ETH in its upcoming spot ETF order. Note that this question has never been asked regarding a spot/future BTC ETF product. pic.twitter.com/TwhqmTnJfC

— Scott Johnsson (@SGJohnsson) May 14, 2024

Ilan Solot, co-head of digital assets at Marex Solutions, said Ethereum is a “lightning rod” for negative sentiment from domestic and foreign crypto players and has many weak points.

“Capital is falling apart. There are many Layer 2 tokens (OP, ARB…) in each and a proportionately larger number of ways to access the ecosystem via native protocol tokens. The capital is falling apart,” Solot said in an email.

Solot added that there is strong anti-ETH sentiment. [rival] The Solana community and Bitcoin advocates are promoting negative ether narratives, saying the high-beta cryptocurrency is a “perfect vehicle” for external players to express their bearish views, given that it is traded on traditional exchanges such as the Chicago Mercantile Exchange.

Finally, Ether has recently turned inflationary, reversing the bullish deflationary supply trend that has been consistently seen since its mainnet Ethereum transitioned to a proof-of-stake consensus ecosystem in September 2022.