The Slow and Painful Death of Ethereum

Joe Consorti, an analyst at The Bitcoin Layer and advisor to self-custody app Theya, released an incisive critique on the future of Ethereum

Analyst Joe Consorti has published a scathing critique on the future of Ethereum in comparison to Bitcoin, arguing that the former is facing a “slow and painful death.”

In his analysis, titled “The Slow & Painful Death of Ethereum,” Consorti compares the two leading cryptocurrencies, highlighting Ethereum's significant underperformance and declining market interest.

Highlighting the stark contrast in performance metrics between Ethereum and Bitcoin over the past year, Consorti points out that while ETH has suffered a 10.6% drop in value since January, BTC has recorded a substantial 42% increase. This divergence is further underscored by the ETH/BTC ratio, which has recently broken below the key 0.05 level.

According to Consorti, this ratio is more than just a number; it also represents the shifting balance of power in the crypto market.

"The more important gauge of the staying power of Ethereum, and all of “crypto” by extension, is ETH/BTC. By removing dollars from the denominator, we can clearly see that from a market dominance perspective, all of “crypto” is on life support. ETH/BTC has cratered through the key 0.05 level, an arbitrary threshold but crucial to the trading behavior of the two assets over the years."

Consorti attributes the differing performances to the contrasting narratives that have driven investor interest in both cryptocurrencies. While Ethereum's narrative has largely been built around its technological advancements and potential applications, ranging from smart contracts to decentralized finance, he suggests that this narrative is no longer resonating with investors as strongly as it once did, leading to diminished hype.

In Consorti's view, Bitcoin continues to attract investors with its clear value proposition of being a decentralized, finite digital asset, which he terms “absolute scarcity.” The analyst highlights the performance of the US spot Exchange Traded Funds (ETFs) to further illustrate this point.

"We also see a clear divergence in the two assets when looking at U.S.-based Ethereum ETFs, which have experienced consistent net outflows, totaling over $110 million during an 8-day streak, showcasing waning investor confidence. On the flip side, Bitcoin ETFs not only launched successfully but have continued to attract significant capital, accumulating approximately $750 million in net inflows."

Another pivotal aspect of Consorti's argument centers around the monetary policies of Ethereum and Bitcoin. While Ethereum's shift to a Proof of Stake (PoS) consensus mechanism in 2022 initially led to a deflationary supply mechanism, this was short-lived, as highlighted by a subsequent upgrade that increased Ethereum's supply by 200,000 ETH over five months.

"The ‘ultrasound money’ narrative has also died on the vine. After shifting to a Proof of Stake consensus last year, ETH supply briefly turned deflationary. However, one narrative-crushing update later, and the network has printed over 200,000 ETH in new supply over 5 months."

He criticizes the frequent changes in monetary policies, contrasting it with Bitcoin's fixed supply of 21 million coins, which he argues offers investors a reliable hedge against inflation and monetary debasement, making BTC appealing to everyone.

"Bitcoin’s fixed monetary policy and absolutely scarce supply schedule are a breath of fresh air for investors who are keen on hedging themselves from unfettered monetary debasement. While ETH ETFs are off to an abysmal start, Bitcoin ETFs have managed to grab the number 3 and 9 spot in YTD net inflows amongst all U.S.-based ETF products."

Finally, the broader financialization of Bitcoin is also a key theme in Consorti's analysis. He discusses recent developments such as Nasdaq's filing to allow Bitcoin options trading, which reflects Bitcoin's growing integration into mainstream financial markets. This, Consorti implies, not only enhances Bitcoin's legitimacy but also its attractiveness as an investment vehicle relative to Ethereum, which has seen its ecosystem deteriorate in parallel with the price decline of its native token.

At press time, ETH is trading at $2,522.

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