Ethereum Market Cap Falls $1 Trillion Behind BTC: 3 Reasons ETH is Losing Market Share in 2024

Analysis:

Ethereum price opened trading at $2,647 on Oct 20. While ETH has failed to extend its rally above the monthly peak of $2,686 recorded on Tuesday Oct 15, Bitcoin price has surged by another 10% during that period.

At the time of writing on Oct 20, Ethereum’s market cap has now slipped $1 trillion behind BTC. On-chain analysis reveals 3 major bearish catalysts that have held back the ETH rally in the past week.

Ethereum (ETH) Market Cap Slips $1 Trillion Bitcoin (BTC) as Altcoins Gain Ground

Ethereum ecosystem has been fraught with several controversies in recent months. Despite recent price gains, crucial market data shows that the unresolved network issues are now starting to negatively impact ETH’s appeal to investors, causing the pioneer smart-contract network to lose market share over the last 2 bull cycles.

Since the start of 2024, Ethereum has conceded ground to Bitcoin. Firstly in the H1 2024, Bitcoin price twice entered new all-time highs in March and July 27 respectively. On both occasions Ethereum price failed to reclaim its global peak of $4,600 recorded in 2021As the year draws to a close this phenomenon has become more obvious. .

On Oct 20, 2024, Ethereum’s laggard performance relative to BTC reached a significant milestone, further emphasizing stakeholders concerns surrounding the progress and rationale behind its recent network updates.

The TradingView chart above, shows that Bitcoin market cap currently stands $1.35 trillion as BTC prices rose to an 80-day peaks above the $68,000 level.  Meanwhile in comparison, Ethereum’s market cap has remains rooted at $317 billon, reflecting a $1.04 trillion gap.

For proper context, that gap was just $625 billion when the crypto markets reached new peaks back in Nov 2021, with BTC at $1.2 trillion compared to Ethereum $575 billion valuation.

More so, Ethereum dominance (ETH.D) declined by 38% between Nov 2021 and October 2024, while BTC dominance (BTC.D) only increased by 11.28%

This shows that, Ethereum price has not lost ground to BTC alone, but other altcoins have also encroached on ETH’s market share over the last 3-years.

This puts big question marks on the rationality behind the major network updates such as the transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS).

Many BTC maxis believe that the PoS transition may have Satoshi’s main principles of decentralization, as the ETH network now reliant on a handful of large scale node validators.

After the Ethereum merge in September 2022, many had anticipated The centralization risk may have reduced investor’s interest in ETH especially among whales.

Why is Ethereum Losing Market Share in 2024 ?

While the speculations surround Ethereum’s network frailties rage on within the crypto community, on-chain data trends shows 3 major bearish catalysts that have slowed down ETH’s price ascent in recent weeks.

1. Ethereum Whale Transactions Declined 70% in the Last 4-Years

One of the major drivers of value within any blockchain ecosystem is the activity of large corporate entities and high net-worth individuals, categorized as whale investors in the crypto parlance.

While Ethereum has lost significant market share between the 2021 bull cycle and 2024, a closer look at the underlying on-chain data shows that the whale demand for ETH has also nosedived during that period.

IntoTheBlock’s chart below tracks the Average Size of Transaction executed daily on the Ethereum network.

Looking at the chart above, Ethereum average transaction size peaked at $29,706 on May 3, 2021 before price hit an all-time high 6-months later. But since then, whale demand for ETH has been on a steady decline.

During the early-2024 rally, Ethereum average transaction size only reach $9,147 on March 4, weeks before ETH hit the yearly peak of $3500. This shows that over the last 2 bull cycles, the peak whale demand for ETH has declined by nearly 70%.

As fewer institutional and high-net-worth investors execute large transactions, ETH’s liquidity decreases, reducing its price momentum and making it less competitive compared to Bitcoin.

Evidently, this 70% drop-off in whale demand has likely contributed to Ethereum losing market share during both the 2021 bull cycle and the current rally, as Bitcoin’s stronger whale activity and adoption have allowed it to maintain dominance in the crypto market.

2.  Ethereum Foundation & Vitalik Buterin Sold over $1B ETH During Market Rallies

Ethereum foundation is the non-profit organization founded by Vitalik Buterin and responsible for executing critical operational and developmental activity within the network.

The persistent selling pressure observed in wallets linked to the Foundation over the years has formed another crucial bearish factor dampening investor confidence in ETH as a long-term store of value.

According Arkham Intelligence chart below monitors the total crypto holdings in wallets controlled by the Ethereum Foundation.

As of December, 4 2020, Ethereum Foundation held at total of 608,000 ETH. But since then, the Vitalik led foundation has developed a pattern of selling strategically whenever there’s a market rally.

After 3-years of constant selling , the foundation now holds just 272,000 ETH at the time of writing on Oct 21, 2024. This implies that Ethereum Foundation sold off nearly 336,000 ETH worth approximately $906.3 million within the last 4-years.

The same trend is observed in personal wallets associated with Vitalik Buterin. In the last 4-years, the Ethereum Founder strategically sold off 102,000 ETH (worth $273 million at current prices). According to the Arkham Intelligence charts, Vitalik is persistently drawing-down on his personal ETH holdings, cutting his from 343,000 ETH in October 2021, to just 241,000 ETH left as October 21 2024.

When key developers of a project keep sell their holdings, it dampens confidence, especially among strategic and highly analytical corporate investors, which may have negatively impacted whale demand as previously highlighted.

More so, by flooding the market with such over $1 billion worth of ETH during market rallies, Vitalik and the Ethereum foundation inadvertently decelerated potential ETH price upswings, keeping prices from advancing at the same pace as BTC and other prominent mega-cap crypto asset.

3. Ethereum ETFs Adoption Rates 85% Slower than Bitcoin ETFs

Lastly, the advent of ETFs (Exchange-traded funds) is another key factor that has influenced the redistribution of capital investments towards the cryptocurrency sector in 2024. The approval of Bitcoin ETFs in January 2024 by the US SEC, marked a major milestone, paving the for Ethereum ETFs which was recently approved in late-July 2024.

However after 2 full months of trading, the adoption rate between Bitcoin ETFs and Ethereum ETFs has sparked major concerns.

According the charts depicted above Ethereum ETFs have pulled-in net asset of $7.35 billion with $139.46 million in total value traded at the time of publication on Oct 21, 2024. Meanwhile, in comparison, Bitcoin ETFs had racked up $46 billion $48.2 billion net assets and $1.72 billion in total value traded with the first 2 months of trading.

This shows that Ethereum ETF inflows are trickling in 85% slower than Bitcoin ETFs adoption rate. The further emphasizes the bearish narrative that corporate investors’ interest in ETH has been on a steady decline.

Looking Ahead:

ETH market cap has fallen $1 trillion behind BTC in October 2024, reflecting a 38% decline in Ethereum’s market share, when compared to the $625 million gap observed during the 2021 bull cycle.

Media reports suggests Ethereum is losing market share to Bitcoin and other rising altcoin, due to the centralization risk introduced by the controversial Proof-Of-Stake transition executed in 2022.

In a recent official blog post, Vitalik Buterin also echoed this view.

When introducing a new roadmap to fix this problem, Buterin warned that the growing dominance of large stakers and the departure of small stakers to join large pools could spell doom for the Ethereum blockchain.

“This separation of powers helps keep validators decentralized, but it has one important cost: the actors that are doing the “specialized” tasks can easily become very centralized.”

Ethereum Co-Founder, Vitalik Buterin, Oct 20, 2024.

Currently, to become a solo validator on the Ethereum blockchain, one must stake a minimum of 32 ETH (approximately $87,844), a significant barrier to entry for smaller stakers.

As a result, large stakers have acquired a disproportionate number of validator nodes, leading to a concentration of power in the hands of a few.

Two block builders, Beaverbuild and Titan Builder, produced an overwhelming 88.7% of all blocks validated in October 2024 so far, sparking major concerns among other network participants.

Centralization increases the risk of problems like 51% attacks and transaction censorship. Additionally, there’s the risk of value extraction, where a small group benefits at the cost of Ethereum users.

This explains why major investors are reluctant to make large investments in ETH, causing the 75% decline in whale transactions, and 85% drop-off in the adoption rate on Ethereum ETFs compared to BTC.

However, given that Vitalik Buterin has now launched a new roadmap to fix the centralization issues, strategic investors will hold out to see if the technical changes can reverse the concerning trends in 2025 and beyond.