Author: 636Marx
The second largest digital currency in the digital currency market, ETH, seems indifferent to the recent market recovery, with a continued sluggish trend, especially in terms of its on-chain activities, price performance and investor sentiment. First, from the perspective of the changes in ETH's on-chain data, the author can assert that Ethereum is accumulating strength, preparing for a big upswing.
The above data comes from the whale activity tracked by intotheblock, which shows that these addresses have been actively buying and selling within a month, with the marked addresses adding over 1.7 million ETH.
Ethereum DeFi Revenue and On-chain Activity
In Q3 2024, Ethereum's decentralized finance (DeFi) revenue fell to $261 million, the lowest level since Q4 2020. This marks a broader slowdown in DeFi activity on the network. DeFi was once the crown jewel of Ethereum, but has been hit by declining transaction fees and usage, leading to a significant drop in revenue. One possible reason for this sluggishness is the intensified competition from Layer2 solutions and other blockchain ecosystems (such as Solana and Binance Smart Chain), which offer lower fees and faster transactions, posing challenges for Ethereum in maintaining its DeFi dominance.
Additionally, while Ethereum's transaction volume and staking have increased, the growth of the broader ecosystem, including the total value locked (TVL) in Layer2 solutions, has surpassed Ethereum's main network. Over $12 billion has been locked in Ethereum Layer2, but this has not yet translated into significant price momentum for ETH. The Shanghai upgrade and the 119% growth in total TVL in 2023 indicate that the Ethereum ecosystem is maturing, but these benefits have not immediately reflected in the short-term price trend.
Bitcoin Performs Well but Risks Increase
In comparison, Bitcoin has shown remarkable strength. However, the open interest in Bitcoin derivatives reached a record high of over $31 billion in Q3 2023, which the author believes will be the biggest obstacle to Bitcoin's future rise. The rapid increase in open interest usually precedes volatility, as traders take leveraged positions in anticipation of significant price movements. The open interest in Bitcoin alone has increased by 32,440 BTC in just one week, indicating heightened speculative activity and speculation on further price appreciation.
The rise in Bitcoin's price is driven by a combination of factors, but primarily the increasing institutional adoption, this year's Bitcoin halving event, and the launch of new financial products such as Bitcoin ETFs. These catalysts are strengthening the bullish narrative around Bitcoin.
Why is Ethereum's Price Lagging?
Despite these broader market dynamics, the author believes that there are three main reasons why Ethereum has not kept pace with Bitcoin:
1. Regulatory Uncertainty: Ethereum's price performance is partly suppressed by regulatory uncertainty, particularly around the approval of a spot Ethereum ETF. While Bitcoin spot ETFs were quickly approved, driving up Bitcoin's price, Ethereum investors are still waiting for the SEC's stance in December. The potential approval of a spot Ethereum ETF in December this year could be a catalyst for ETH price appreciation, but until then, Ethereum's performance will continue to lag behind Bitcoin.
2. Technical and Network Upgrades: The Layer2 solution Unicain has encouraged transactions by reducing Ethereum fees, but the author believes that the launch of Unicain will put pressure on ETH prices. Technological improvements often take time to be reflected in asset prices, and investors may adopt a "wait-and-see" attitude. Network improvements also require time to translate into increased user activity and transaction volume.
3. Ethereum Layer2: As Layer2 solutions continue to evolve, Ethereum faces the challenge of maintaining its core value proposition. While Ethereum remains the settlement layer for most Layer2 solutions, the shift of activity to these networks means a reduction in Ethereum's own fee revenue, which explains the continued decline in Ethereum's DeFi revenue.
Why is an ETH Breakout Imminent?
For BTC, the lingering effects of the halving and the high open interest, leverage, and market expectations may drive its price higher, even to new historical highs. However, with the increase in market leverage, a significant price correction is also a real and predictable risk, which can be verified in past market cycles.
For ETH, the price lag will not last forever. Once the policy around the Ethereum spot ETF is in place (in 2 months), and Layer2 starts to channel more value back to the Ethereum mainnet, ETH may experience a strong breakout. Furthermore, Ethereum's continuously expanding staking ecosystem and ongoing upgrades ensure its long-term fundamentals remain robust.
The author believes that, benefiting from the rising institutional demand and the prospect of future supply constraints, BTC is leading the current crypto market trend, while ETH is facing temporary headwinds, but its fundamentals are very strong. Over time, ETH's breakout may surpass BTC, with the timeline set for early next year.
