Ethereum's performance in this bull market is relatively weak, and its growth is far less than that of Bitcoin. Let's compare the two and analyze the reasons in depth:
Reason 1: Differences in capital flows
Although the circulating market value of Bitcoin is large on the surface, most of the coins are in a static state, and 3-4 million coins have lost their private keys. More than 9 million coins are locked by long-term holders, institutions and financial contracts, including more than 1 million Bitcoins of Satoshi Nakamoto. Although these Bitcoins have not disappeared, they are not actively participating in market transactions.
There are only about 5-6 million active coins in the market, accounting for about one-third of the total market value, or about 300 billion. Compared with Ethereum, the actual market value of Bitcoin is comparable to that of Ethereum. This means that Bitcoin is not as "bulky" as it seems, and institutional funds tend to invest in Bitcoin first.
Reason 2: Macroeconomic impact
In the current global macroeconomic environment, the Federal Reserve's monetary policy, interest rate hike expectations, and the volatility of inflation data directly affect the performance of risky assets. As a safe-haven asset, Bitcoin benefits from the loose policy expected by the market, while Ethereum is relatively vulnerable. This is related to Ethereum's positioning and usage scenarios. Ethereum is more of a smart contract platform and infrastructure for decentralized applications, and its demand is more dependent on the overall speculative sentiment of the market, especially the activity of DeFi and NFT.
When the overall market risk appetite declines, the activity of Ethereum's ecosystem also declines, causing funds to flow out of the Ethereum ecosystem, which in turn affects the price performance of ETH. Even with the expectation of monetary policy easing by the Federal Reserve, funds will first flow into assets with stronger liquidity and higher market consensus, such as Bitcoin, rather than Ethereum.
Reason 3: Competitive pressure
Although Ethereum is the most mature smart contract platform, it faces competition from other emerging public chains such as Sol, TON, BNB, Matic, Avax, etc. With the rapid development of these emerging public chains, they provide faster transaction speeds and lower transaction costs, attracting a large number of decentralized applications and developer migration, which in part leads to a relative decline in the activity of the Ethereum ecosystem.
Secondly, although the expansion of Layer 2 solutions (such as Arb and Op) solves the scalability problem of Ethereum, it also diverts funds. Although these Layer 2 networks are based on Ethereum, they absorb part of the transaction volume that originally belonged to the Ethereum main network, making the demand for ETH itself relatively weakened, which indirectly affects the price performance.
From a longer-term perspective, the structural differences between Bitcoin and Ethereum determine their performance differences in different cycles. As a means of storing value, Bitcoin is closer to the positioning of "digital gold", while Ethereum, as the base layer of smart contracts and decentralized applications, is more dependent on the risk appetite of the overall market. The current market environment is more inclined to the flow of conservative and risk-averse funds, so Bitcoin has an advantage. The value of Ethereum depends more on the growth of application scenarios such as decentralized finance (DeFi), NFT, and games. These areas have great potential in the future, but the speculative sentiment is low in the short term, resulting in relatively weak performance of Ethereum.
In summary, Ethereum's current weakness is mainly affected by the flow of funds to Bitcoin, the macroeconomic environment, and competitive pressure. Although it is weak in the short term, Ethereum's long-term potential still exists. With the changes in the global economic situation, the shift in market sentiment, and the continued development of the Ethereum ecosystem, ETH will still re-exhibit its strong upward momentum in the future. However, the current market structure determines that Bitcoin will perform better in this cycle, and Ethereum needs to wait for more ecological innovations and benefits to keep up with the pace of growth!
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