Why ether underperformed bitcoin in 2024
Since January 1, bitcoin (BTC) has rallied 119% while its nearest rival, ether (ETH), trailed way behind at just 44%. A year-end review is in order to understand why Vitalik Buterin failed to lead ETH to outperform BTC and other major assets in 2024.
For context, tether’s (USDT) market capitalization increased 52% this year. ETH’s market cap even failed to outperform a stablecoin. It has also underperformed XRP, BNB, SOL, and even DOGE.
Embarrassment is setting in.
Generally speaking, crypto assets are ending the year on a high note. Without exception, the market cap of every top 10 asset has outperformed the S&P 500’s 23% year-to-date rally. Respectably, ETH bidders lifted $4,000 offers for the first time since 2021 and suffered no major hacks or downtime.
But why did ETH fail to outperform BTC so disappointingly? Here are ETH’s wins, losses, and major developments from 2024.
Read more: Did Vitalik Buterin’s girlfriend stall Ethereum development?
Dencun and proto-danksharding
In March 2024, Ethereum’s major Dencun fork activated, introducing “proto-danksharding” by modifying how the network handles non-transaction data. As described in EIP-4844, proto-danksharding allows temporary data blobs to reduce data storage costs for layer 2 roll-ups.
The soft fork, called an “upgrade” by the Ethereum community, activated relatively smoothly. Two months before Dencun went live on Ethereum’s mainnet, developers had time to patch a bug, noticing that it was failing to reach consensus on the Goerli testnet.
That issue caused a chain split while investigators spent time troubleshooting. Some validators had failed to upgrade their systems to include Goerli.
Dencun caused another, brief problem when it activated on mainnet: a protocol called Blast stopped producing blocks. In about an hour, however, Blast had solved that problem.
Proto-danksharding is interesting on a technical level and seems to make it less expensive to use layer 2 roll-ups due to improved data management.
However, Dencun has not generated the same level of excitement as the much-hyped merge to proof-of-stake. In the end, it wasn’t the upgrade ETH needed to outcompete BTC during 2024.
Beam Chain
Another important milestone for Ethereum in 2024 was Justin Drake’s proposal of Beam Chain at Ethereum’s Devcon conference in Bangkok.
Drake, one of Etherum’s top leaders, suggested that Beam Chain could update or replace Ethereum’s antiquating Beacon Chain, which manages the processing and recording of transactions.
In addition, Beam Chain could alleviate maximum extractable value (MEV) — a persistent problem for ordinary users and zero-knowledge protocols using Ethereum’s blockchain. Beam Chain could also increase block throughput and the number of transactions per block.
For now, though, Beam Chain is just another proposal that has failed to propel ETH’s price beyond BTC in 2024.
Native tokens proposal
Ethereum’s newly introduced EIP-7809 would add the capacity to treat Ethereum-based tokens in the same way as ETH. EIP-7809 introduces new operation codes (“opcodes”) such as MINT & BURN, BALANCEOF, NTCALL, and NTCREATE.
Senior developer Paul Berg introduced the concept, saying it will add more tools for developers interested in creating financial services on Ethereum.
Although some fans of the proposal are building proofs of concept for native tokens on Ethereum, most people who aren’t developers haven’t noticed a difference. In any case, the proposal certainly didn’t boost the market cap of ETH itself.
US spot ETH ETFs
On the heels of approving the first BTC spot ETFs in January, the Securities and Exchange Commission (SEC) approved the first spot ether ETFs. Sponsors for these ETFs included major companies like BlackRock, VanEck, Grayscale, and Galaxy.
ETH spot ETFs saw $107 million in inflows on the first day of trading. However, most investors viewed these ETFs as inevitable once BTC spot ETFs were approved.
Over the course of 2024, Ethereum has received just $2.4 billion worth of net inflows from US-listed spot ETH ETFs.
That is less than 0.6% of ETH’s market cap. No wonder this milestone failed to help ETH outperform BTC in 2024.
Mekong testnet
On November 7, 2024, the Ethereum Foundation launched its Mekong testnet, which includes the features planned for the upcoming Pectra fork. This includes UX updates described in EIP-7702, an update to staking that increases maximum effective balances as described in EIP-7251, and changes to deposits and exit mechanisms described in EIP-6110 and EIP-7002.
Technically interesting and an important testnet, for sure, but Mekong didn’t drive the price of ETH at a faster rate than BTC in its final weeks of 2024.
A disappointing 2024 for ETH
In all, Ethereum certainly has had many positive developments this year, including a suite of investment vehicles to attract capital inflows: the long-awaited, US spot ETH ETFs. Nevertheless, the world’s second-largest crypto asset merely retained its second place rank this year.
BTC not only outperformed ETH by over 80% but it also increased its size by over $1 trillion versus ETH’s $130 billion.
At the start of the year, BTC accounted for 48% versus ETH’s 16% of the coins listed on CoinGecko. Today, BTC’s dominance has rallied to 55.1% while ETH’s dominance has declined to 11.7%.
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