1. Market preference and hedging sentiment
BTC's hedging properties: Although interest rate cuts typically encourage investors to increase their allocation to risk assets, BTC's attributes as 'digital gold' provide stronger hedging functions during macroeconomic fluctuations. Therefore, even if overall market sentiment improves, funds are more inclined to enter BTC rather than ETH. This preference allows BTC to perform relatively better in times of macro uncertainty, while ETH's performance is relatively weak.
2. Liquidity pressure in the ETH ecosystem
Locked ETH from staking: Since ETH transitioned to proof of stake (PoS), a large amount of ETH has been locked in staking contracts, leading to liquidity issues in the market. Although interest rate cuts may stimulate more liquidity, the staked ETH cannot be immediately liquidated, resulting in relatively little ETH circulating in the market, which also affects ETH's performance compared to BTC.
DeFi capital utilization rate declines: Although interest rate cuts can bring more liquidity, the DeFi market has not seen a significant influx of funds. Relatively, the demand in the DeFi and lending platforms within the ETH ecosystem remains sluggish, as investors maintain a cautious attitude towards high-risk financial instruments, which has resulted in ETH's demand falling short of expectations.
3. Concentrated inflow of BTC ETF and institutional funds
Expectations for BTC spot ETF: Recent optimistic expectations regarding the BTC spot ETF have reignited market enthusiasm, attracting a large number of institutional and retail investors' attention. In contrast, ETH has not had similar significant news or new products to stimulate the market, resulting in ETH's performance being weaker compared to BTC.
Institutional preference for BTC: In the context of interest rate cuts, more institutional investors are choosing BTC as their preferred asset to enter because it represents the largest market capitalization and the broadest market acceptance in the cryptocurrency market. Meanwhile, BTC's volatility is relatively lower than that of ETH, and institutional funds tend to favor BTC for its stability and hedging characteristics.
4. Layer 2 solutions diverting ETH demand
Layer 2 diversion effect: Ethereum's Layer 2 scaling solutions (such as Arbitrum, Optimism) have improved the overall scalability of the ecosystem, but to some extent, they have diverted demand away from the mainnet ETH. The rapid rise of Layer 2 has led users and funds to flow towards these chains instead of the mainnet, resulting in the demand for ETH itself not significantly increasing with the rise in market liquidity.
5. Technical and scalability issues
Ethereum network fee issues: Although interest rate cuts have increased overall market liquidity, the high transaction fees on the Ethereum network remain a major barrier for user inflow. High Gas fees lead many small users and projects to avoid ETH, turning to other public chains or Layer 2 solutions, thereby suppressing ETH's price performance.
Lack of incentive effects from technological updates: Although the upgrade to ETH 2.0 has been implemented, the market's reaction to these technological updates has been relatively tepid, particularly as the proof of stake mechanism has not brought about the significant price increases that were anticipated. Therefore, interest rate cuts have not translated into a noticeable upward momentum for ETH.
6. Weak recovery in NFT and DeFi markets
Cooling of DeFi and NFT: The value of ETH largely relies on the prosperity of the DeFi and NFT markets. However, even in the context of interest rate cuts, the activity in these two areas has not significantly rebounded. The total value locked (TVL) in DeFi has significantly decreased during the previous market downturn, and although interest rate cuts may increase liquidity, they have not prompted a noticeable rebound in these locked amounts, thereby affecting ETH's performance.
Increased competition from other ecosystems: The overall cooling of the NFT market, combined with the strong performance of other blockchains (such as Solana, Polygon) in the NFT field, has also prevented ETH from benefiting significantly. The ETH ecosystem has been further divided, impacting ETH's performance relative to BTC.
