Why has Ethereum lost market share to Bitcoin?

Author: Yashu Gola, CoinTelegraph; Compiler: Deng Tong, Golden Finance

On August 5, Ethereum’s native token Ether fell to a three-year low against Bitcoin amid global market turmoil. The sharp drop caused ETH/BTC’s returns to fall by 25% so far this year.

ETH/BTC daily price chart. Source: TradingView

Ethereum continues to underperform Bitcoin despite the launch of a spot exchange-traded fund (ETF) in the United States. This could be a catalyst to attract institutional capital to the Ethereum market, as many analysts predict.

SOL Is Beating Ether

Ethereum’s increasing underperformance relative to Bitcoin is consistent with its declining dominance relative to its largest blockchain competitor, Solana and its SOL token.

Notably, the SOL/ETH pair has gained 10.75% in the past 24 hours, hitting a new high of 0.064 ETH on August 8. This surge coincides with the launch of the Brazilian spot Solana ETF.

SOL/ETH daily price chart. Source: TradingView

Meanwhile, this is part of a rally that began in June. Since then, the pair has rebounded about 75%.

Ethereum ETF underperforms Bitcoin on debut

The much-anticipated spot Ethereum ETF was launched in the U.S., but investors' response was unexpectedly cold. According to Farside Investors, the investment vehicles have seen $387.7 million in outflows since they went live on July 23.

Ethereum ETF flows. Source: Farside Investors

In contrast, Bitcoin ETFs saw positive net inflows in the first two weeks after their launch on January 11.

Bitcoin is primarily seen as a "store of value." Ethereum, on the other hand, is seen as a platform for decentralized applications and smart contracts. This fundamental difference could affect the preferences of traditional investors.

For example, according to CoinGecko, only six public companies hold Ethereum as a reserve asset, compared to 29 companies with Bitcoin.

Ethereum Enters Descending Channel

From a technical perspective, Ethereum’s decline against Bitcoin is part of a downtrend that has been in place since September 2022 within its prevailing descending channel.

In May 2024, ETH/BTC tested the ascending trendline of the channel, around 0.056 BTC, and has since retraced as much as 30%. Interestingly, the same ascending trendline coincides with two other resistance levels, namely the 50-week (red) and 200-week (blue) exponential moving averages (EMAs).

ETH/BTC weekly price chart. Source: TradingView

Nevertheless, as of August, Ethereum is still testing the descending trendline of the channel in search of a rebound, with a potential upside target of around 0.050 BTC. This level coincides with the 0.236 Fibonacci retracement level of ETH/BTC.

The likelihood of a rebound further increases as Ethereum’s weekly relative strength index (RSI) reading is 34.60, just over 4 pips away from its oversold threshold level. An oversold RSI usually precedes a rally or consolidation period.