There was a time when Bitcoin and Ethereum would move in tandem most of the time, like the Batman and Robin of the crypto space. One led, and the other one followed close behind. However, that’s not the case anymore. Although Ethereum continues to be the second most valuable crypto project and has a strong influence in the industry, it’s been struggling to keep up with the main crypto for quite some time now.
Looking at the evolution of the ETH/BTC price, there can be no denying that the correlation between the two has weakened, and now the gap that is separating them is growing wider. While Bitcoin has been scoring important points this year, topping one record after another, attracting increased interest from investors, and making its way into the mainstream, Ethereum’s progress, while still notable, has been much more modest.
Studying the phenomenon, analysts have uncovered a series of factors that could provide answers as to why Ethereum is consistently lagging behind Bitcoin. Here’s what they found.
Market dominance and popularity
Despite the increasing number of blockchains and associated coins that keep emerging, Bitcoin continues to be the largest and most popular asset of its kind, with a market dominance of over 60%. Bitcoin is, and will forever remain, the crypto archetype, the project that provided the foundational design and inspiration for the creation of all other digital currencies.
This dominance translates into public awareness. The fact that Bitcoin has been in the market the longest and has received extensive media coverage over the years provides it with a level of popularity and recognition far greater than that of its peers. Everyone has heard of Bitcoin, even if they may not be aware of its inner workings. For many, Bitcoin is the only crypto that matters – and the only one they know about. Some still naively think that Bitcoin and crypto are one and the same thing. Or even if they’re aware of the distinction, Bitcoin is still the first thing that comes to mind when crypto is brought up.
Ethereum, on the other hand, while also a resounding name in the crypto space, is nowhere near as popular and established as Bitcoin. This means many investors are either oblivious of Ethereum’s existence or have a very limited knowledge of the blockchain and its native token.
Therefore, Bitcoin benefits from the fact that awareness and convenience are the main drivers behind investors’ decisions. Most prefer to take the beaten path instead of taking risks, and understandably so. Since familiarity breeds confidence, it’s only natural for investors to be drawn to assets they’re more educated about, which is why they consistently choose Bitcoin over other options in the market.
While Bitcoin is fueled by a self-reinforcing cycle, where its ongoing dominance encourages people to keep investing in it, thus leading to more coverage and awareness, Ethereum is constantly eclipsed by its predecessor and finds it difficult to step out of its shadow. So, it all comes down to people’s tendency to opt for the safest and simplest route.
High network fees
If there’s one thing that can drive users away from a blockchain platform, that is high transaction costs, especially when they’re doubled by slow processing speed. Unfortunately, Ethereum has been battling both of these issues for years, which has resulted in major scalability challenges that are yet to be addressed.
Ironically enough, Ethereum’s fame as a programmable blockchain is one of the factors that have contributed to the problem in the first place. The increased demand for Ethereum’s services, particularly since the rise of decentralized finance (DeFi) and non-fungible tokens (NFTs), exceeds the network’s capabilities and leads to constant congestion. As a result, users have to pay higher fees to ensure their transactions are processed faster. This competitive market drives up prices and reduces transaction confirmation times.
The excessive gas fees might not have been such a thorn in Ethereum’s side if it weren’t for other blockchains that provide better alternatives. Solana, for example, delivers much faster processing times, being able to handle up to 65,000 transactions per second (TPS), all while offering remarkably low transaction fees. The blockchain’s unique tech infrastructure and innovative features allow users to complete all sorts of transactions at the lowest costs possible.
While Ethereum has been working on solving the problem, the Layer-2 solutions it introduced didn’t do much to improve the situation, their effectiveness being overshadowed by their technical complexity. Until Ethereum manages to find a proper solution in this respect, the high gas fees are going to act as a barrier to progress, while Bitcoin is going to continue its ascent unbothered.
Application stagnation
Another factor contributing to the widening gap between the crypto frontrunner and the main altcoin is the lack of innovation in Ethereum’s DeFi environment. Back in 2021, when DeFi started picking up pace, Ethereum was one of the main beneficiaries as it supported the creation of a wide range of decentralized finance applications and saw its ecosystem expand considerably. Attracted by the numerous opportunities these apps provided, investors flocked to Ethereum, fueling its price.
Things look much different today. Although Ethereum is still the primary platform for dApp development, there has been little innovation in this space, as the projects that emerge don’t bring much novelty. Instead, they reiterate the same models and use cases of previous apps, which makes users lose interest in these types of products. Other blockchains seem more adept at responding to users’ needs and leveraging market trends to boost their appeal, with Solana meme coins offering a prime example in this regard.
Ethereum’s poor performance in relation to Bitcoin doesn’t stem from one source in particular, but is the result of a combination of factors. Therefore, it’s going to be rather difficult (but not impossible) for Ethereum to turn its fate around and resume its rise.
