Ether's Meteoric Rise Defies Bitcoin's Momentum, Analyst Foresees Sustained Strength

ETH soars 16% in a week, surpassing Bitcoin's 8.5% increase, as fundamentals outshine.

In a dazzling display of strength, Ether (ETH) has outperformed Bitcoin (BTC) over the past week, marking a potential shift in crypto dynamics, according to insights from Greg Magadini, Director of Derivatives at Amberdata.

Ether's surge of over 16% in the last seven days has propelled it above the $2,900 mark, a peak not witnessed in nearly two years. In contrast, Bitcoin recorded a more moderate 8.5% increase, reaching $52,300, as per CoinDesk data. The ether-bitcoin ratio has concurrently leaped nearly 7% to 0.055, while the CoinDesk Indices CD20, representing the broader crypto market, has seen a robust rally of 10.7%.

This significant ETH outperformance follows weeks of Bitcoin taking the spotlight, fueled by the launch of spot BTC exchange-traded funds (ETFs) in the U.S. and the upcoming quadrennial reward halving, poised to reduce the per-block BTC payout from 6.25 BTC to 3.125 BTC.

Magadini suggests that the narrative may soon shift towards Ethereum's favorable position, specifically the substantial decline in ETH supply since the network's shift to a proof-of-stake consensus mechanism in September 2022 during The Merge upgrade. This contrasts with Bitcoin's halving, which merely decelerates the cryptocurrency's growth rate.

"Everyone is talking about the Bitcoin halving in April, but that’s nothing compared to the active 'REDUCTION' in ETH supply already occurring since Sept. 2022," emphasized Magadini in a weekly newsletter. "ETH is the next play here! Low ETH/BTC ratio, actively finding a bid, [with ETH's] fundamental supply picture even better than BTC."

Since The Merge, data from Ultrasound.money reveals that 1,047,643 ETH ($3.05 billion) have been issued, accompanied by the burning of 1,407,200 ETH, resulting in a net supply reduction of 359,557 ETH or 0.209% year-on-year. In contrast, Bitcoin's supply increased by 1.71% during the same period.

This reduction reflects a deflationary trend driven by Ethereum burning a portion of transaction fees paid to validators. The transition replaced miners with validators, effectively removing a substantial portion of ether supply from circulation.

Validators, staking a minimum of 32 ETH, contribute to the governance process and secure the blockchain, earning rewards in return. With over 30.1 million ETH staked, representing 25% of the total circulating supply, the impending Dencun upgrade in March is expected to further reduce transaction costs.

Moreover, regulatory developments are anticipated to contribute to Ethereum's bullish narrative, with the Securities and Exchange Commission (SEC) likely approving spot ether ETFs in the U.S. later this year. Major players, including Franklin Templeton, BlackRock, Fidelity, Ark, 21Shares, Grayscale, VanEck, Invesco, Galaxy, and Hashdex, have submitted applications.

Magadini underscores the potential impact, stating, "Combine this ETH 'Supply BURN' with dormant STAKED ETH and mix in a SPOT ETF actively putting ETH into cold storage … all of a sudden, the supply story for ETH is as bullish as fundamentals can get."

(Photo Source / Blockonome)