ETH Lags Behind BTC as Network Activity Plunges, ETF Hopes Stall

Ether (ETH) has underperformed Bitcoin (BTC) since mid-March due to reduced network activity, dwindling optimism for spot Ethereum ETFs, and Bitcoin's upcoming supply halving. On-chain data shows a decline in DApp usage and transaction volume on Ethereum, contributing to its underperformance against BTC. Despite being the leading DeFi network, Ethereum has faced increased competition from Solana in terms of on-chain activity. Additionally, the SEC's lack of communication on potential spot Ether ETF approvals in May has dampened investor sentiment.

Ethereum Underperforms Bitcoin Amid Declining Network Activity, Stalled Ethereum ETF Hopes

Since the onset of 2023, Ethereum (ETH), the second-largest cryptocurrency by market capitalization, has embarked on an upward trajectory, only to witness a downturn in mid-March. Compared to Bitcoin's (BTC) 57% surge against the US dollar (USD) year-to-date, ETH has registered a more modest gain of approximately 48%, lagging behind its dominant counterpart.

Reasons for Ethereum's Lagging Performance

Several factors have contributed to ETH's underperformance against BTC in recent weeks:

1. Decreased Network Activity: Ethereum's network activity, including that of its scaling solutions, has exhibited a decline. Decentralized applications (DApps), the cornerstone of the Ethereum ecosystem, have experienced a reduction in both user count and transaction volume, signaling diminished demand for ETH.
2. Weakening Sentiment Surrounding Ethereum ETFs: The prospect of spot Ethereum exchange-traded funds (ETFs) being approved in May has waned, adding to the bearish sentiment around ETH and contributing to its lackluster performance against BTC.

Evidence of Network Activity Decline

Data from DappRadar, a Web3 data aggregator, indicates a 6.42% decrease in the number of active addresses across Ethereum's top DApps over the past 30 days. The decline has been particularly pronounced in popular DApps such as Uniswap, MetaMask Swap, Blur, and OpenSea, with transaction volumes plummeting by 26.51%.

Coinglass data corroborates this trend, revealing a decline in several key network activity metrics for Ethereum. Daily active addresses have dropped significantly, falling from 622,963 on March 20th to 499,448 on April 10th.

Ethereum's Weakening DeFi Dominance

Despite Ethereum's continued prominence in the DeFi sector, Solana has made significant inroads in recent times, capturing market share in terms of on-chain activity. This shift has been driven by the popularity of memecoins and an increase in stablecoin transfer volume on Solana.

Stalled Ethereum ETF Hopes

The prospects of a spot Ether ETF being approved by the U.S. Securities and Exchange Commission (SEC) in May have dwindled, furtherdampening enthusiasm for ETH. VanEck CEO Jan van Eck has expressed skepticism regarding the imminent approval of such ETFs, citing a lack of regulatory engagement on the matter.

In an interview with CNBC, van Eck stated that VanEck's Ethereum ETF application is likely to be rejected. Bloomberg ETF Analyst Eric Blachunas, who initially estimated a 70% likelihood of Ethereum ETF approval by May, has recently reduced his optimism to 35% due to the SEC's lack of communication with issuers.

Fellow analyst James Seyffart has also raised concerns, questioning the SEC's silence on the ETF applications, which were anticipated to garner substantial regulatory attention.

Conclusion

Ethereum's underperformance against Bitcoin, supported by dwindling network activity and diminished optimism surrounding spot Ethereum ETFs, underscores the challenges facing the cryptocurrency in the near term. While Ethereum remains a prominent player in the DeFi landscape, its dominance is under threat from competitors such as Solana. The SEC's stance on Ethereum ETFs remains a crucial factor in determining ETH's trajectory in the coming months.