Bitcoin's growth is "far ahead", why can't Ethereum keep up

Due to the hype that a spot Bitcoin ETF may be approved in the United States, Bitcoin has rebounded for two consecutive weeks. During the same period, Ethereum's gains were more moderate, and the price of Ethereum relative to Bitcoin (ETH/BTC trading pair) continued to fall.

According to TradingView data, as of press time, the ETH/BTC ratio is 0.05182, the lowest since mid-2021 and close to the low of around 0.049 in June 2022. The last time the ratio fell below 0.049 was before May 2021.

Historical data shows that ETH/BTC highs usually occur during bull markets where Ethereum performs well, reaching 0.085 at one point. However, in bear markets, the situation reverses and Bitcoin usually takes the lead.

Meanwhile, Bitcoin continues to outperform most altcoins, driving its dominance soaring to 54.4% of the total crypto market cap, its highest level since April 2021. A ratio of over 50% means Bitcoin's market cap exceeds the combined total of all other cryptocurrencies.

The data in the above chart shows that the index has been fluctuating between 39% and 49% for nearly two years until it broke out of this range in mid-June. This breakthrough coincided with the news that BlackRock applied for a spot BTC ETF in the United States, when the price of Bitcoin rose to over $30,000.

Why is Bitcoin so far ahead in terms of growth?

One analyst noted that Bitcoin is leading the gains due to spot ETFs and the risk-off narrative.

Recently, with Grayscale's recent victory in court and traditional financial giants such as BlackRock, Fidelity, and Ark Invest applying for Bitcoin spot ETFs, the community is very enthusiastic, and industry insiders believe that the U.S. Securities and Exchange Commission ( SEC ) approval of the ETF is almost a foregone conclusion, which may unleash a new wave of demand for Bitcoin.

Noelle Acheson, crypto market analyst and author of Crypto Is Macro Now, said in her daily newsletter that the rise in Bitcoin’s dominance can be explained by market cycles and Bitcoin’s appeal as a lower-risk asset than altcoins, including ETH.

Acheson noted that “Bitcoin tends to lead the cryptocurrency market early in a cycle, only to lose its dominance as investors become more comfortable with the risk curve and smaller altcoins gain traction.”

Ethereum lacks a bullish narrative

According to a report released Monday by digital asset manager CoinShares , so far this month, investment products based on Bitcoin and Solana have seen inflows of approximately $112 million and $43 million, respectively, while Ethereum-based funds have seen outflows of $4.7 million.

In fact, according to a report by CoinShares, Ethereum has seen the highest outflows this year, totaling $119 million, followed by Tron.

James Butterfill, head of research at CoinShares, attributed the difference in funding for BTC and Ethereum to “anticipation of a spot Bitcoin ETF” and “ongoing concerns about Ethereum.”

Noelle Acheson also pointed out that Bitcoin has ETFs and risk-averse narratives as tailwinds, while Ethereum faces unfavorable factors such as regulatory indifference and upgrade uncertainty. Although Ethereum has been at the forefront of the decentralized finance (DeFi) movement and pioneered smart contracts, network congestion and high transaction fees have been persistent problems, especially with the emergence of emerging competitors in the field.

Bitfinex analysts said in a report that the main bullish narrative in the market is the BTC ETF product, while Ethereum lacks a convincing long-term narrative.

Earlier this month, six Ethereum futures-based ETFs launched in the U.S. However, opening trading was sluggish, failing to generate the same level of excitement and trading volume as the first BTC futures ETF, ProShares BITO, which launched in October 2021.

David Duong, head of research at Coinbase , said that the top ETH futures ETFs had a total first-day trading volume of less than $1.5 million. In stark contrast, BITO had a trading volume of more than $1 billion on its inception day, according to Bloomberg data. In addition, the net inflow into these ETH futures ETFs was less than 2% of BITO.

Benjamin Jarvis, co-founder of JLabs Digital, an analysis agency, said in an interview with Bloomberg that "institutions may be more willing to invest in Bitcoin spot ETFs because they believe that Bitcoin spot is less risky than Ethereum futures."

Normal capital rotation?

Data shows that the price of BTC has risen by 32% in the past month, while ETH has only risen by 12%. Looking at a longer timeline, the price of Bitcoin has doubled this year, while ETH has risen by about 50%.

Technical indicators analyzed by Crypto Daily show that Ethereum is currently facing resistance at $1,794 and $1,955. On the other hand, support levels are identified at $1,308 and $1,470, which suggests that Ethereum may find some support around these price points. A report from Bitfinex said that the market is in the early stages of a bull run, and it is normal for Bitcoin to rise first and then rotate capital as investors look for beta trades such as Ethereum.

John Glover, chief investment officer of cryptocurrency lender Ledn, believes that historically, when the price of Bitcoin rises, funds will begin to flow into altcoins. This means that the launch of one or more spot Bitcoin ETFs is likely to trigger the next big bull run in the entire crypto ecosystem.