CoinDesk Analysis Team
CoinDesk
Investors continue to prefer ether over Bitcoin in a high interest rate environment.
Top two ether futures ETFs listed last week register dismal volumes, per Kaiko.
The Ether-Bitcoin (ETH/BTC) ratio continues to lose ground amid the lack of meaningful demand for the recently launched futures-based ether exchange-traded funds (ETFs).
ETH/BTC fell to 0.05675 late Monday, reaching the lowest since July 2022, according to charting platform TradingView. The ratio has declined by nearly 30% since Ethereum implemented Merge in mid-September last year.
As many as six ether futures ETFs went live in the U.S. last week, opening doors for traders looking to take exposure to the second-largest cryptocurrency without owning it.
The early response has been tepid, with the big two - VanECK's EFUT and ProShares EETH - registering an average daily trading volume of $5 million in the first week, according to Paris-based crypto data provider Kaiko.
That's a far cry from ProShares Bitcoin Strategy's (BITO) first-day trading volume of $1 billion. ProShares bitcoin futures ETF debuted at the height of the crypto bull run in October 2021. Since then, the crypto market has taken a beating, with higher interest rates worldwide taking the wind out of the unprecedented risk-taking seen after the coronavirus-induced crash of 2020.
Per Kaiko, the bear market could be responsible for ether's underperformance relative to bitcoin.
"ETH’s underperformance is likely due to the ongoing impact of the bear market, which historically has seen traders turn to BTC, the oldest and largest crypto asset. ETH spot trade volume has also stayed mostly flat over the past two months, only spiking above $2bn a handful of times," Kaiko's research team said in a weekly note to subscribers on Monday.
The increased haven demand for bitcoin is also evident from its dominance rate or the share in the total crypto market, which has increased from 41% to 51% this year.
Per Amberdata's Greg Magadini, ether is at a disadvantage in the higher interest rate environment compared to bitcoin.
"If ETH is the crypto tech stock and BTC is crypto gold, the higher rate environment we currently see in the macro landscape will have an outsized impact on the 'long duration' tech stock. Digital gold also is hurt by higher rates, but a bid is found in response to global fiat uncertainty and geopolitical risk," Magadini said in an email, noting the potential for continued ether underperformance ahead.
Last month, the Federal Reserve signaled that it intends to keep the benchmark borrowing cost above 5% next year, having lifted the same by 525 basis points since March 2022 to control inflation.
Bitcoin is widely seen as a digital gold in the crypto market, thanks to an inbuilt code on its blockchain that reduces the pace of its supply expansion by 50% every four years. The fourth so-called halving is due next year.
Magadini said the regulatory outlook also favors bitcoin.
"BTC enjoys the 'commodity' asset category while ETH remains unclear. This crypto sector regulatory issue has a much higher impact on ETH," Magadini noted.
"Even if ETH is deemed a “commodity” the DeFi projects built on TOP of ETH are subject to regulatory scrutiny. If DeFi usage drops in response to regulation, then the EIP-1559 Ultrasound money narrative suffers due to lower usage. The terminal value of ETH is greatly affected by the future of its issuance rate flipping from net burn to net issuance," Magadini added.
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