Key Points
- Ethereum’s market dominance has dropped to 13%.
- Declining market share is due to weakening demand, rising supply, and Bitcoin’s increasing dominance.
- Bitcoin has gained over 120% year-on-year (YoY), while Ethereum has gained around 50%.
- Several factors contribute to Ethereum’s underperformance, including whale selling activity and low demand for ETH ETFs.
Ethereum’s Market Dominance Decline
Ethereum’s market dominance has plummeted to a range low of 13%, a significant drop from its yearly high of nearly 20%. This decline is attributed to a combination of factors, including weakening demand, rising supply, and Bitcoin’s increasing dominance. Over the past year, Ethereum has underperformed compared to Bitcoin, which has seen a remarkable gain of over 120% YoY, while Ethereum’s gains have been around 50%.
The declining market share of Ethereum is a cause for concern among investors and market analysts. The drop in dominance indicates that Ethereum is losing its competitive edge in the cryptocurrency market. This trend is further exacerbated by the rising dominance of Bitcoin, which continues to attract more attention and investment.
Bitcoin’s Rising Dominance
Bitcoin’s dominance in the cryptocurrency market has been on an upward trajectory this year. This metric has been forming higher highs and moving within an ascending channel since the start of the year. One of the key factors driving this rise is the high demand for spot Bitcoin exchange-traded funds (ETFs). These ETFs currently hold more than $57 billion worth of BTC, reflecting significant institutional interest and fueling positive price performance.
The increasing dominance of Bitcoin is not just a result of its price gains but also due to the growing institutional interest. Major financial institutions are now more inclined to invest in Bitcoin, seeing it as a safer and more stable investment compared to other cryptocurrencies. This shift in investment patterns is contributing to the widening gap between Bitcoin and Ethereum in terms of market dominance.
Whale Selling Activity
Another critical factor contributing to the decline in Ethereum’s dominance is the selling activity by large holders, commonly known as whales. Recently, a significant address that participated in the 2014 Initial Coin Offering (ICO) deposited 5,000 ETH to Kraken, valued at $12 million. Over the past two weeks, this whale has deposited around 50,000 ETH, valued at $125 million, to various exchanges.
The Ethereum Foundation has also been on a selling spree, contributing to the underperformance of Ethereum. Since the beginning of the year, the foundation has sold more than $10 million worth of ETH. This uptick in whale selling activity, without a corresponding rise in demand, could see ETH continue to trade rangebound if new buyers fail to enter the market.
Weak Demand for ETH ETFs
Unlike Bitcoin, Ethereum has recorded low demand for its spot ETFs. Since their launch in July, these ETFs have seen $849 million in outflows. The outflows have been spurred by the Grayscale Ethereum Trust, and the ETFs are also struggling with a lack of new inflows. For instance, the BlackRock spot ETH ETF has posted zero inflows in the last two days, and the Fidelity Ethereum Fund has not seen any positive flows this month.
This weak demand for ETH ETFs has failed to drive gains for Ethereum, further contributing to its decline in dominance. The lack of institutional interest in Ethereum ETFs compared to Bitcoin ETFs highlights the challenges Ethereum faces in attracting large-scale investments.
Rising Supply and Inflation
Ethereum is also grappling with a rising supply and a declining burn rate, which has turned the coin inflationary. In the last 30 days, more than 43,000 ETH tokens were added to the circulating supply. Ethereum’s annual inflation rate recently reached 18%, the highest level since August. This increase in supply, without a corresponding rise in demand, is bound to increase sell-side pressure on Ethereum, causing it to lose market share to Bitcoin and other altcoins.
The rising supply of Ethereum is a significant concern for investors. The increase in the number of tokens in circulation dilutes the value of each token, leading to a decrease in price. This trend is further compounded by the declining burn rate, which means fewer tokens are being removed from circulation.
Market Sentiment
Ethereum’s falling dominance has also contributed to weakening market sentiment. Most traders are bearish on Ethereum, while smart money or institutions remain bullish. The bearish sentiment among retail traders is a reflection of the broader market trends and the challenges Ethereum faces in maintaining its market position.
The overall market sentiment towards Ethereum is a mix of caution and optimism. While retail traders are wary of the declining dominance and rising supply, institutional investors see potential in Ethereum’s long-term prospects. This divergence in sentiment highlights the uncertainty surrounding Ethereum’s future in the cryptocurrency market.
Conclusion
Ethereum’s market dominance has dropped to range lows, driven by weakening demand, rising supply, and Bitcoin’s increasing dominance. The underperformance of Ethereum compared to Bitcoin, coupled with whale selling activity and low demand for ETH ETFs, has further exacerbated this decline. The rising supply and inflation rate of Ethereum are additional challenges that the cryptocurrency must address to regain its market position. Despite these challenges, there remains a mix of bearish and bullish sentiment towards Ethereum, reflecting the uncertainty and potential that the cryptocurrency holds.