3 reasons why Ethereum prices will continue to underperform Bitcoin in 2024

Author: Nancy Lubale, CoinTelegraph; Compiler: Deng Tong, Golden Finance

ETH started the year strongly but has gradually weakened since mid-March. Although ETH gained momentum in mid-May due to the approval of the US spot Ethereum ETF, its performance is still inferior to Bitcoin.

ETH is up about 60% in the past 12 months, while BTC is up 87% in their respective USD pairs.

Performance of Ethereum and Bitcoin so far this year. Source: TradingView

A new report jointly released by the Chicago Mercantile Exchange Group (CME Group) and Glassnode, "Digital Assets: Insights and Market Trends," reveals some of the reasons why ETH underperformed BTC in 2024, as described below.

Ethereum will continue to fall against Bitcoin in 2024

Data from Cointelegraph Markets Pro and TradingView show that Ethereum has experienced a relatively deep correction in 2024, with the largest drop of 31% between March 12 and May 1. In contrast, Bitcoin fell 23% during the same period.

ETH/USD daily chart and BTC/USD daily chart. Source: TradingView

Zooming in, Ethereum has experienced relatively deep pullbacks compared to Bitcoin, with the largest pullback in the 2022-24 cycle at -42% so far. In previous cycles, both the early and late stages of the macro bull run saw pullbacks of more than -65%.

The Glassnode-CME Group report also noted that in the 2023-24 cycle, “the ETH/BTC ratio continued to decline,” indicating that general investor risk appetite remains low in the current cycle.

According to the chart below, the ETH/BTC ratio has been trending downward since the merger, marking periods where Bitcoin outperformed Ethereum, which is still happening today.

ETH/BTC ratio. Source: Glassnode

The report documents a variety of reasons for Ethereum’s underperformance, including the U.S. approval of a spot Bitcoin ETF in January 2024 and growing competition from other proof-of-stake blockchains.

“Nevertheless, with the launch of an Ethereum spot ETF in the United States, this could serve as a catalyst to reverse this downward trend.”

ETH’s realized volatility in 2024 is still lower than that of previous cycles

The report uses on-chain metrics from market intelligence firm Glassnode to analyze the market value realized value (MVRV) ratio to measure overall profitability for investors. The MVRV ratio tracks the difference between market value and realized market value and describes the average unrealized profit or loss held by the market.

The report notes that while this metric has steadily improved since October 2023, its current value of approximately 1.8 is still well below the 6.2 and 3.8 peaks during the 2017 and 2021 bull cycles.

Ethereum MVRV ratio. Source: Glassnode

In contrast, the report shows that Bitcoin's MVRV ratio is about 2.5, indicating that ordinary BTC investors are holding larger unrealized profits than ETH investors.

This means that investors still believe that BTC is more highly valued than ETH, and they would rather put their money into the pioneer cryptocurrency than Ether.

K33 Research shares this view, noting that while ETH’s performance has mirrored BTC’s throughout the year, the market is “underestimating Ether’s potential” as the ETH/BTC ratio stubbornly trades near 3-year lows.

“We believe the market is underestimating the ETH ETF effect and forecast that the U.S. ETH ETF will absorb 1% of the circulating ETH supply,” wrote Vetle Lunde, senior analyst at K33 Research.

Similar to Glassnode and CME Group, Lunde said he expects “the ETH ETF effect could lead to ETH outperforming in the second half of 2024.”

ETH Futures Volumes Lag Behind Bitcoin

According to reports from Glassnode and CME Group, futures markets remain the primary source of volume in the digital asset market, often “five to ten times larger than spot volumes.”

While Ethereum’s open interest remained high in 2024, reaching an all-time high of $17.09 billion on May 29, according to Glassnode, derivatives volumes remain significantly lower than Bitcoin’s.

High futures volumes indicate high investor confidence and enthusiasm, which could lead to more buying and higher prices.

The chart below shows that since October 2023, futures market volumes have recovered, with Bitcoin's daily contract volume exceeding $34.4 billion and Ethereum's daily contract volume at $26.7 billion.

"Daily volumes of this size are similar to previous market cycles, although they are still below the all-time peak in the first half of 2021."

Although Ethereum has underperformed Bitcoin, analysts are optimistic that the spot Ethereum ETF will drive ETH to new highs as some speculate that Wall Street will use it to bet on the growth of Web3. Others speculate that a spot Ethereum ETF could attract more than $15 billion in the first few months, pushing ETH prices to $10,000 during this cycle.