Bitcoin has been outperforming Ethereum since September of last year after the hype around the merge died down.
BTC: +65% YTD
ETH: +55% YTD
But that might be about to change. Since the merge, Ethereums supply has been in a steady downtrend. Now, due to the spike in Gas Fees with the slow recovery of the crypto market, ETHs supply deflation has recently begun to accelerate.
Since the merge to proof of stake, Ethereum has become a both deflationary asset as well as a high yield-bearing asset. But Investors remained hesitant to stake their eth due to the fact that it wasn’t liquid.
This was because although you could stake your Eth, you couldn’t unstake it until the Ethereum Shapella upgrade which recently took place in May. However, now that staking is liquid, investors are beginning to pile into staking their ETH.
As you can see in the chart this growth in the staking of Ethereum has significantly accelerated since the shapella upgrade, on top of an already deflating supply at a rate of more than 1% per year – which might continue accelerating along with the recovery in network activity. As a result, we are experiencing a rapid reduction in the circulating supply of ETH.
The fact that ETH is now a liquid yield-bearing asset makes it astronomically more valuable in the eyes of investors, especially compared to Bitcoin and many DeFI tokens (even Though Bitcoin is generally seen as the less risky asset). To put it simply, we’re seeing substantial value accumulation for ETH holders over the last 9 months or so.
The ETH-BTC pair is currently finding support, if it can move higher from here and break out of the falling wedge pattern that it’s been in since the merge in September of last year, things will be looking pretty good. Generally, Bitcoin leads us out of bear market cycles, so it’s looking like ETH might be setting up to follow.
Here is the verdict: there is a bit of short-term uncertainty in terms of liquidity conditions that may not be great for the market (read about that here). If liquidity conditions get worse and crypto moves lower from its current levels, we’ll have to hang out and wait for the next opportunity later in the year.
ETH was recently able to find support at $1,650 and has bounced back. If it can find some momentum to break and hold above $2,000 the outlook is setting up pretty nicely considering all of the other fundamental metrics.
Long-Term We’re Very Bullish On ETH, especially as the Ethereum network continues to make upgrades to increase its efficiency and scalability. Not to mention all of the activity that’s taking place with layer2s and now layer3s.
Make sure you Check out our Ethereum deep dive to get a better understanding of how we look at Ethereum and ETH the asset and why we’re very bullish over the next 5 to 8 years.