- Ether has lagged behind Bitcoin and Solana in price increases.
- According to experts, this is due to the diversity of cryptocurrencies.
- However, a key event is expected to catapult the Ether price higher.
Essentially, it was a groundbreaking year for Ethereum.
The explosion of fast Layer 2 networks has caused fees to drop dramatically. The merger, which marked Ethereum’s groundbreaking transition from energy-intensive proof-of-work to eco-friendly proof-of-stake, has also driven billions into Ether staking, particularly so-called liquid staking. About $36 billion worth of Ether is currently staked via liquid staking protocols, according to DefiLlama data.
Trading in exchange-traded spot Ether products began in July and was made available to a new class of institutional investors.
There is only one problem: the Ether price is still lagging.
According to an investment simulator from financial firm 21Shares, Bitcoin and Solana are both up 38% since the beginning of the year, while Ether is up just 15% over the same period. What’s going on?
Yves Longchamp, Managing Director and Head of Research at crypto bank AMINA, said DL Newsthat it is because Ethereum serves a different purpose than Bitcoin and Solana.
Their price-performance ratio should therefore be considered individually and not compared, he said.
In addition, experts predict that the upcoming US Federal Reserve meeting in September could be the catalyst that pushes the Ether price up.
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Key differences
Longchamp said the soaring prices of Bitcoin and Solana were supported by the launch of spot Bitcoin exchange-traded funds and the ongoing memecoin hype.
Since their launch in January, spot bitcoin ETFs from Wall Street heavyweights such as BlackRock and Fidelity have attracted more than $20 billion in investments, according to Farside Investors.
Due to the memecoin activity on Solana in July, the 24-hour trading volume on the network was significantly higher than that of Ethereum and its Layer 2 networks combined.
Although Ether has also managed to ride the bull market this year, it differs from its cryptocurrency cousins in some ways. This may explain why it has not experienced the same dramatic upswings.
The digital oil of cryptocurrencies
Bitcoin is often touted as digital gold, a name that has not yet been established.
Ether, on the other hand, is more like digital oil, says Tal Zackon, CEO and co-founder of crypto data platform Tres Finance.
“The price of Ether is a direct reflection of how expensive it is to use the Ethereum network,” he said DL News“In the future, Ether will be like the price of oil. It is a utility currency that will underpin the workflows of the future of finance.”
Transactions via Ethereum are notoriously slow and expensive.
In 2017, network fees skyrocketed after a non-fungible token about cats called CryptoKitties went viral, virtually driving all but the wealthiest users out of the business.
That is no longer the case. On August 11, Ethereum’s average transaction costs were at their lowest level in years, according to Etherscan.
This is partly due to the rise of Layer 2 networks, which are shifting much of the transaction activity away from Ethereum.
This is also the reason for the drop in the price of Ether, said Longchamp. Users have to hold less of it to be able to interact with the network.
“This (layer 2 development) will take the pressure off the base chain to process each transaction, resulting in lower network load and lower gas fees,” he told DL News.
“Essentially, the fact that Ethereum price has remained relatively stable indicates a positive development on a technical level.”
How will Ether rise?
Solo Ceesay, CEO of crypto wallet Calaxy, says increased inflows into spot Ether ETFs will support the digital asset.
On August 5, as global capital markets collapsed, investors flocked to spot Ether ETFs. Just as they were buying Ethereum, they also dumped their Bitcoin ETF holdings.
Ceesay said that if Bitcoin, which has a high correlation with the rest of the market, performs well, so will Ether.
Many investors expect the Bitcoin price to rise when the US Federal Reserve cuts interest rates. According to FedWatch data, the probability of this happening in September is 100%.
Zackon said the change in market sentiment is another tailwind, as the majority of decentralized finance activity still runs on Ethereum.
Data from DeFiLlama shows that Ethereum accounts for more than half of all DeFi investments.
Liam Kelly is DeFi correspondent for DL News. Do you have a tip? Email [email protected].
