The price of Ether (ETH), the
native cryptocurrency of the Ethereum blockchain network, has been soaring
since the beginning of the new year. What's more, it has outperformed Bitcoin
(BTC) since Jan. 1, gaining roughly 81% compared to Bitcoin's 26% in their
respective USD pairs year-to-date.
Bitcoin, Ether YTD performance. Source: Digital Assets Data
There are three main reasons why ETH has been outpacing BTC throughout the past several days. The factors are Ethereum’s accelerating growth, the improving sentiment around DeFi and BTC’s current period of relatively low volatility.
ETH/BTC 1-day price chart (Binance). Source: TradingView.com
Ethereum is seeing rapid
growth fueled by DeFi sentiment
DeFi tokens have been surging
rapidly as of late, led by majors such as Aave and SushiSwap, as Cointelegraph
reported.
The rally of DeFi tokens is
partly fueled by the fast-growing total value locked (TVL) of the DeFi market,
which estimates the amount of capital deployed to DeFi protocols.
At over $24 billion, there is
more capital locked across DeFi protocols than ever before, which signals
massive demand. This is crucial for the momentum of Ethereum — and consequently
its Ether token — because more and more apps and tokens rely on its network.
The rising number of users is
shown by the massive uptick in Ethereum gas fees. Although high transaction
fees are not ideal, Jacob Franek, a partner at DeFi alliance, said this is a
positive factor because it shows the willingness of users to pay, indicating
genuine demand. He said:
“Cumulative fees, yes. It's the most direct measure of aggregate willingness to pay (i.e., demand) for block space. Ethereum has the most valuable block space in crypto now. Would it be better if individual tx fees were lower? Yes. That will come with L2 and other scaling efforts.”
Ethereum daily transactions chart. Source: Etherscan.io
Other layer one blockchain
protocols are growing with significant anticipation to compete against
Ethereum, like Polkadot and Cosmos.
However, in the foreseeable
future, Ethereum’s network effect and the combined value of DeFi protocols on
Ethereum make it less likely that Ethereum’s dominance in the DeFi sector would
be challenged in the short term.
BTC is consolidating with low
volatility
Throughout the past several
days, Bitcoin has been mostly consolidating with low volatility allowing many
altcoins to catch up. This has led the demand for altcoins with lower volume
and liquidity to increase.
The Ether price rally
coincides with what traders describe as “altseason,” a period wherein many
altcoins rally in tandem especially when Bitcoin sees small price movements.
This altseason — historically
witnessed in the first months of the year — occurs when Bitcoin is ranging and
investors seek high-risk plays. Altcoins usually see bigger price movements
because their low liquidity makes them vulnerable to extreme volatility in
short periods.
For retail and derivatives
traders, the high volatility of the altcoin market makes smaller
cryptocurrencies more appealing, at least in the near term, to trade over
Bitcoin.
Meanwhile, BTC/USD remains in
an uncertain position with some traders warning Bitcoin may break down from its
range rather than continuing onto higher highs. If this happens, altcoins are
likely to see larger losses compared to BTC. Jonny Moe, a cryptocurrency
trader, said:
“Every time I start to
convince myself to lean bullish, the longer I stare at this chart the more I
start to get bearish again. I just really feel like this is going to breakdown
and we close the weekly red, and I can't shake that off yet.”
Source Cointelegraph