Ethereum (ETH) has underperformed Bitcoin (BTC) by up to 44% since Ethereum’s transition to a proof-of-stake (PoS) network known as “Merge” nearly two years ago, analysts at CryptoQuant report.

Hailed as a major update to Ethereum’s blockchain, Merge marked the transition from the energy-intensive proof-of-work (PoW) mechanism to PoS, but since the switch, ETH’s performance has lagged behind Bitcoin.

Merge, seen as a major upgrade to Ethereum’s blockchain, marked the transition from the energy-intensive proof-of-work (PoW) mechanism to PoS, but since the switch, ETH’s performance has lagged behind Bitcoin.

CryptoQuant noted that ETH continued to underperform Bitcoin even after the approval of Ethereum spot ETFs in the US on July 23. As of the latest data, the ETH/BTC price ratio has fallen to 0.0425, the lowest level since April 2021.

The underperformance isn’t limited to Bitcoin. Ethereum has also lagged behind other major altcoins, according to Julio Moreno, CryptoQuant’s Head of Research. “Ethereum has underperformed altcoins like Solana and BNB since the Merge, down 53% and 18% respectively,” Moreno said.

Looking ahead, CryptoQuant analysts suggest that ETH could continue to lose value relative to Bitcoin. “We estimate that ETH would need to drop by approximately 50% to reach 0.02 in bitcoin terms for it to enter undervaluation territory,” the analysts wrote.

According to CryptoQuant, one of the main reasons for Ethereum’s underperformance is its weaker network activity compared to Bitcoin. Total transaction fees on Ethereum have been steadily decreasing, especially after the Dencun upgrade, which aimed to increase efficiency but resulted in lower transaction costs. The report also noted that Ethereum’s transaction count compared to Bitcoin has fallen to its lowest levels since July 2020.

Another factor contributing to ETH’s sluggish performance is its unfavorable supply dynamics. Since early April, the total supply of ether has been increasing and currently stands at 120.323 million, the highest level since May 2023. According to analysts, this increase in supply has likely put additional pressure on ETH prices.

Finally, investor sentiment appears to be shifting in favor of Bitcoin over ETH. CryptoQuant noted a significant drop in spot trading volume for ETH compared to BTC. “The ETH/BTC spot trading volume ratio has fallen from 1.6 to 0.76 in the past week alone,” the report said, indicating a growing preference among traders for Bitcoin.

*This is not investment advice.