Ethereum Trails Other Coins in 2024 – What’s Behind ETH’s Disappointing Run?
What's Behind Ethereum's Underperformance | Credit: Derek Fenech
Key Takeaways
- Ethereum (ETH) has increased by only 11.64% since the start of 2024.
- Ethereum’s supply has become inflationary since the Dencun upgrade.
- Will this lackluster performance continue for the rest of the year?
Ethereum’s price has fallen since its yearly high of $4,093 on March 12. The high coincided with the release of the Dencun upgrade. So far, ETH has increased by 11.64% since the start of the year.
What are the reasons for Ethereum’s underperformance, and how likely it is to continue for the rest of the year?
Ethereum Falls to the Bottom
The performance of blockchains since the start of 2024 shows that from those in the top 10, Ethereum is the worst performer, increasing by only 11% (white). During this time, Ethereum has even underperformed Bitcoin by nearly three times.
Solana (SOL) is the only other top 10 blockchain failing to equal Bitcoin. However, it beat BTC handily in 2023, so this could be a brief pause in a rapid upward trend.
Meanwhile, Toncoin (TON) leads the pack with a nearly 200% increase (green).
Considering that the price of ETH had a lackluster 2023, it is worrisome that the second largest cryptocurrency is trending at this slow pace. Historically, periods where the ETH trend surpasses BTC have marked alt season, leading to rapid increases in altcoin prices.
When looking closer at the movement, ETH’s price was outshining the others until March, before it fell off a cliff.
Reasons Behind the Lackluster Performance?
Interestingly, the much-anticipated, Dencun upgrade went live on March 13, one day after Ethereum reached its yearly high of $4,093.
It greatly reduced transaction fees and aimed to improve Ethereum’s scalability by using the Proto-Danksharding upgrade, which introduced blob transactions.
When considering Layer 2 performance, the upgrade was a resounding success. It greatly increased the number of transactions, especially in Arbitrum, Base, and Optimism. The upgrade also reduced transaction fees for most Layer-2s by nearly tenfold.
However, this has not been the case for Ethereum. Rather, transactions have declined slightly since the Dencun upgrade, and volume has remained near the same levels.
In turn, since Ethereum uses transaction fees with as a burn mechanism, the combination of much lower fees and the same number or slightly lower transaction count has caused a notable increase in inflation.
In the past 30 days, Ethereum’s supply has increased by a yearly rate of 0.612%. Previously, the supply became deflationary after the switch to a proof-of-stake in September 2023, but is back to being inflationary since the end of March, shortly after the Dencun upgrade.
While the rate of inflation is still lower than 3.4% before the merge, it is still a worrisome development. It is not out of the question that inflation can become even steeper if the current trend continues.
The introduction of blob transactions has allowed Layer-2s to maneuver the fee markets , leading to lower burn rates for ETH. While there have been some ideas to fix this issue, more specifically imposing an additional tax on Layer 2-s , nothing concrete has come out of it yet.
Future Ethereum Price Outlook
Despite this negative on-chain outlook, the ETH price chart does not look that bad. The Ethereum recovery after the Aug. 13 lows created a long lower wick (white icon) taking the price above two important support levels: the 0.5 Fibonacci retracement support level and the $2,490 horizontal support area.
Additionally, the bounce validated the midline of a long-term ascending parallel channel. So, based on the price action, Ethereum’s trend is bullish as long as its price does not close below these support levels.
However, the weekly RSI has fallen below 50 (red icon), a sign of a bearish trend. The previous time this happened was in October 2023 (black circle). At the time, the ETH price bounced, causing the RSI to move above 50 and mark the start of a bullish trend.
So, it is imperative that the price bounces and begins to increase, so as to save a possible RSI crash into definite bearish territory.
The most likely wave count indicates that the price of Ethereum is in a long-term wave four (white), which has taken the shape of a symmetrical triangle.
In it, it has just finished sub-wave C (black). So, after some more consolidation inside this triangle, an eventual breakout and a new all-time high are likely.
As a result, the future Ethereum price prediction remains bullish despite the lackluster performance of 2024.
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