Ethereum Falls Behind Bitcoin Amid Regulatory Uncertainties

Ethereum, the second largest cryptocurrency by market capitalization, has struggled to keep pace with the surge in its older brother, Bitcoin, in the first quarter of 2023, gaining only 53% compared to Bitcoin's 65% rise. Ether's price remains 26% below its November 2021 all-time high, and experts attribute this underperformance to its lower name recognition among non-endemic investors and the ongoing debate over its regulatory status as a security or a commodity.

Ethereum Trails Bitcoin, Hindered by Ambiguous Regulatory Environment

New York, April 11, 2023 - Ethereum, the second-largest cryptocurrency, has struggled to keep pace with the meteoric rise of its forerunner, Bitcoin. Despite a modest 53% gain in the first three months of the year, Ethereum's performance pales in comparison to Bitcoin's 65% surge.

As of Monday, Ethereum traded around $3,612, marking a significant 26% decline from its November 2021 peak of $4,867.60. The lackluster performance can be attributed to several factors, including a relatively low level of name recognition among non-cryptocurrency enthusiasts and uncertainty surrounding its regulatory status.

"Ethereum's persistent Achilles heel is its limited name recognition outside the crypto community," said Joseph Edwards, head of research at London-based crypto firm Enigma Securities. "While economic activity on Ethereum has surged since 2020, reaching all-time highs may take some time."

The approval of spot-traded Bitcoin exchange-traded funds (ETFs) by the United States Securities and Exchange Commission (SEC) has been a key driver of institutional demand for Bitcoin. Ethereum ETFs, however, remain in limbo, awaiting regulatory approval.

VanEck's filing is first in line for a decision on May 23. Standard Chartered Bank anticipates the approval of spot Ether ETFs on that date, forecasting a surge in Ethereum's price to $8,000 by the end of 2024 and $14,000 by the end of 2025.

Ambiguous Regulatory Status

Despite the optimism surrounding Ethereum ETFs, not everyone is convinced that the U.S. regulator will greenlight them. Legal experts and industry insiders have expressed concerns about Ether's ambiguous legal status and expect the SEC to proceed cautiously.

Unlike Bitcoin, which the SEC has classified as a commodity, Ether operates on a proof-of-stake blockchain, allowing users to earn yield by staking their tokens. This feature has led to speculation that Ether could be deemed a security, subjecting it to stricter disclosure rules that run counter to the cryptocurrency ethos of bypassing traditional gatekeepers like banks and exchanges.

"Obtaining SEC approval for staked Ether ETFs will be an uphill battle and is highly unlikely at this juncture," said Anders Helset, head of research at digital assets analytics firm K33.

Muted Institutional Demand

Institutional demand for Ether has been dwarfed by that of Bitcoin. Digital asset funds tracking Ether experienced outflows of $46.4 million in the month leading up to March 23, according to data from CoinShares, compared to inflows of over $4 billion for Bitcoin products.

Some market participants, however, believe that the focus should be on Ethereum's underlying technology, which serves as the backbone of Web3 and supports applications such as decentralized finance and blockchain gaming.

BlackRock's recent launch of its first tokenized fund on the Ethereum blockchain ignited discussions about the platform's broader role in tokenizing real-world assets. To date, over $2 billion worth of commodities and government securities, among other traditional assets, have been tokenized on various networks, with 80% residing on the Ethereum blockchain, according to Swiss cryptocurrency manager 21Shares.