Ether has been outperforming Bitcoin throughout the past few weeks as the momentum of Ethereum gets higher.
The price of Ether (ETH), the native cryptocurrency of the Ethereum blockchain network, has been rising since the beginning of the new year. What’s more, Bitcoin (BTC) has outperformed after January 1, winning nearly 81 percent relative to Bitcoin’s 26 percent in their respective year-to-date USD pairs.
Bitcoin, Ether YTD performance. Source: Digital Assets Data
There are three key reasons why ETH has outpaced BTC over the last few days. Factors are the rapid development of Ethereum, the strengthened mood across the current cycle of comparatively low volatility of DeFi and BTC.
Ethereum is seeing rapid growth fueled by DeFi sentiment
DeFi tokens have been growing steadily since late, led by majors such as Aave and SushiSwap.
The rally of DeFi tokens is partially fuelled by the fast-growing overall locked valuation (TVL) of the DeFi industry, which forecasts the amount of capital deployed to the DeFi protocols.
More than $24 billion in money is trapped into DeFi protocols than ever before, which signals huge demand. This is vital to the momentum of Ethereum—and ultimately its Ether token—because more and more applications and tokens depend on its network.
The growing number of users as seen by the huge uptick in Ethereum gas costs. While high transaction costs are not desirable, Jacob Franek, a DeFi Alliance partner, said that this is a good aspect because it indicates users’ ability to pay, showing actual 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.”
Other layer one blockchain protocols are increasing with the considerable expectation of competing against Ethereum, such as Polkadot and Cosmos.
However, in the near future, the network influence of Ethereum and the cumulative importance of DeFi protocols on Ethereum make it less likely that Ethereum’s supremacy in the DeFi market will be threatened in the short term.
BTC is consolidating with low volatility
Over the last few days, Bitcoin has largely been consolidating with low volatility, helping more altcoins to catch up. This has contributed to a surge in demand for altcoins with smaller volumes and liquidity.
Ether’s price rally coincides with what traders call “altseason,” a time when many altcoins rally in tandem, particularly when Bitcoin sees minor price movements.
This high season—historically experienced in the first months of the year—occurs as bitcoin is rising and buyers are searching for high-risk plays. Altcoins typically have higher market fluctuations because their poor liquidity renders them vulnerable to severe uncertainty in short periods of time.
For retailers and derivative traders, the high volatility of the altcoin market makes smaller coins more tempting, at least in the short term, than bitcoin investing.
Meanwhile, BTC/USD remains in an unpredictable position, with some traders warning that Bitcoin may break down from its range rather than continue to higher. If this occurs, altcoins are expected to see greater losses than BTC. Jonny Moe, a dealer in cryptocurrencies, 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.”
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