Ethereum (ETH) Continues to Underperform Against Bitcoin (BTC)

Ethereum (ETH) has yet to stop its sliding trend against Bitcoin (BTC). The token has now fallen to 0.027 per BTC, testing levels not seen since 2020.

Ethereum (ETH) price completed a full value roundtrip against Bitcoin (BTC), after peaking at 0.085 BTC in December 2021. ETH's price has seen little relief from sliding against BTC since the market crash of 2022, continuing to fall lower despite the token's growing utility.

After peaking in September 2024, Ethereum validators began flowing out of the network. At one point, validators reached more than 1,080,000, but about 25,000 gave up on producing and validating blocks.

Deposits into the Beacon Chain contract also showed a trend of slowing down. Validators still receive payouts from ETH, and some staked their tokens at prices as low as $1,400. However, the recent market turbulence caused fewer ETH holders to be willing to stake for the long term.

While ETH is still used to secure the network through staking, later additions of liquid staking and re-staking tapped into the value of idle ETH. However, none of the use cases from the past five years, such as the NFT boom, Web3 expansion, blockchain games, or DeFi, managed to establish ETH's price influence against BTC.

Despite the chain still being key to most current crypto activities, the major developments had a limited effect on ETH price, which is now sliding to levels last seen in 2020. At some point, those activities were the hottest developments in the crypto space.

ETH had a dynamic trading day on February 3, falling as low as $2,080 with the biggest number of liquidations and selling since August 2024. Within hours, smart money began buying again, taking the token up to $2,900. ETH then stabilized around $2,709.72, though still raising questions on its potential to regain the $4,000 level and move to a higher price range.

One of the reasons for the outflow of staking is the uncertainty around the status of ETH as ultra-sound money. ETH was deflationary for only a few months before returning to an inflation rate of 0.30% to 0.60%. The supply of ETH rises by over 300K to 900K tokens per year, depending on the level of transactions, which reflects the burn rate.

Ethereum is still relatively expensive to use, especially for the new cohort of traders who are used to fast on-chain activity and quickly shifting between tokens. Due to its liquidity and the available ERC-20 stablecoins, Ethereum remains the leading legacy network for decentralized finance (DeFi). Even so, that traffic is quickly shifting to cheaper networks.

Solana, Base, and partially TRON continue to draw in new stablecoin minting activity while also offering growing DEX liquidity, tokens, NFTs, and other accessible on-chain activities. In the last few months, traffic shifted to Solana’s Raydium, which accounted for nearly 30% of all DEX activity.

L2s retained value and did not boost ETH

After Ethereum's Dencun Upgrade opened the doors to extremely cheap activity on L2 chains, even the busiest networks like Base now pay less than $5,000 to secure their blocks on Ethereum. Top users like Taiko still pay under $40,000, as activity decreased following the initial hype period. L2 chains rely on organic traffic, and only a few have retained the best applications and decentralized exchanges (DEX).

L2 chains did manage to scale Ethereum, taking some of the DEX traffic. Notably, Ethereum retained DEX activity for whale-sized deals, especially when switching between wrapped assets and stablecoins.

The blob fees burn only around 80 ETH per week, while the chain produces over 11,700 for the same time frame. The real-time usage of blobs and other types of fees shows the L1 is not built to extract value from the L2 chains. The validators that took the risk of staking ETH still rely on the block reward and the balance of inflation to achieve their returns. Additionally, L2 chains can alter their posting schedule to L1, deliberately decreasing the rent paid to validators.