Why the Ether-Bitcoin Ratio Just Hit Its Lowest Point Since April 2021

By Lars Weer Last updated May 16, 2024
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<li><p>The ether-to-bitcoin ratio has dropped to its lowest point in three years, accumulating a yearly loss of nearly 16%.</p></li>
<li><p>A variety of aspects, including uncertainty regarding the approval of a spot ETH ETF in the U.S. and the rise of Ethereum competitors like Solana, contribute to ether’s poor performance.</p></li>
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<p>The proportion of ether (ETH) to bitcoin (BTC) values in dollars continues its downward trajectory, exacerbating this year's losses. This trend was hinted at by a bearish death cross pattern observed a month ago.</p>
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<p>The ETH/BTC ratio slipped to 0.04563 on Binance shortly before the report, the lowest level since April 2021, as per TradingView data. The ratio has dropped nearly 16% this year, showing a preference for bitcoin, the leading cryptocurrency by market capitalization.</p>
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<p>This decline to three-year lows correlates with decreased demand for exchange-traded products (ETPs) linked to ether.</p>
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<p>Bloomberg data cited in ETC Group’s weekly report reveals that global ether ETPs saw net outflows of about $63.5 million last week, with Hong Kong-listed ETFs experiencing the largest losses. In contrast, bitcoin ETPs saw inflows of $92.5 million last week.</p>
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<p>Various elements, such as the competition from other layer 1 blockchains and ongoing uncertainty over the U.S. approval of spot ETH ETFs, are contributing to ETH’s decline in investor interest.</p>
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<p>“The U.S. approval of spot bitcoin ETFs has bolstered bitcoin’s reputation as a store of value and a macro asset. Conversely, questions regarding ETH’s foundational role in the crypto sector are still unresolved. Competitors like Solana undermine Ethereum's position as the preferred network for decentralized app (dApp) development,” noted David Han, a Research analyst at Coinbase Institutional, in a recent update.</p>
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<figcaption tabindex="0"><span>Solana's share in the total DEX volume. (Data from DefiLlama and Coinbase)</span></figcaption>
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<p>Solana’s dominance in decentralized exchange volumes has surged from 2% to 21% over one year, significantly reducing Ethereum's market share.</p>
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<p>In January, the U.S. Securities and Exchange Commission (SEC) approved almost a dozen spot BTC ETFs, resulting in roughly $12 billion in net inflows, as per Farside Investors.</p>
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<p>If spot ETFs tied to ether get the green light, a similar influx of capital could be directed towards Ethereum’s native token, though the timing of such an approval by the SEC remains uncertain.</p>
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<p>Traders on Polymarket, a decentralized betting platform, estimate only a 10% chance that the SEC will approve a spot ETF by May 31. The SEC has until May 23 to decide on VanEck’s application for a spot Ethereum ETF, with BlackRock’s deadline extending to June 23.</p>
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<p>Finance lawyer Scott Johnsson points out that the SEC might reject the ETH ETF applications by BlackRock and others based on them being misclassified as commodity-based trust shares, therefore not qualifying if they hold a security.</p>
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<p>Ilan Solot, co-head of digital assets at Marex Solutions, describes ether as a magnet for negative sentiment from both crypto insiders and external entities, pointing out its numerous vulnerabilities.</p>
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<p>“Capital becomes diversified. There are proportionally more options to gain exposure to the ecosystem through various Layer 2 tokens (e.g., OP, ARB) and native protocol tokens within each. This causes capital to disperse," Solot elaborated in an email.</p>
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<p>Solot also mentioned that strong negative sentiment from the Solana community and Bitcoin advocates contributes to the unfavorable narrative around ether. Given its high volatility, ether serves as an optimal vehicle for expressing pessimistic views, trading on traditional exchanges such as the Chicago Mercantile Exchange.</p>
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<p>Recently, Ether became inflationary once again, reversing the deflationary supply trend that had been prevalent since Ethereum shifted to a proof-of-stake consensus mechanism in September 2022.</p>
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<p>Edited by Parikshit Mishra.</p>
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