So far, the month hasn’t been favorable for Ether (ETH), the digital currency fueling the Ethereum network. Ethereum stands as the leading blockchain powering a significant portion of web3 sectors, encompassing DeFi, NFTs, GameFi, GambleFi, and SocialFi.
Currently trading just below $1,550, ETH’s price touched a seven-month low earlier this week at $1,520, marking a monthly decline of slightly more than 7.5%.
Being the world’s second-largest cryptocurrency in terms of market cap, Ether seems to be on track for its third monthly drop in the past four months, reflecting a dip of approximately 28% from its annual peak near $2,150 in April.
In comparison, Bitcoin (BTC), the inaugural and most valued cryptocurrency in terms of market cap, has recorded a modest monthly decline of just about 0.5%.
Currently hovering in the $26,800 range, BTC has seen a relatively moderate decrease of 16% from its peak values around $32,000, reached in June.
Given the recent 15-month low of the ETH/BTC ratio, which dropped to below 0.058 following a year-long descent, some investors are pondering if it’s the right moment to transition from Ethereum to Bitcoin.
Here are three arguments supporting such a consideration.
The Technicals Tell a Bearish Story
For nearly a year, the ETH/BTC pair has been trapped in a downward trending wedge pattern.
However, about a week ago, this pair took a negative turn, breaking out of this wedge on the downside.
Since then, ETH/BTC has faced significant resistance at the very downward trend that previously provided support.
Adding to this, the pair has also encountered considerable resistance from its primary moving averages in the past few months, indicating that the bearish momentum still dominates.
Recent technical indicators further point to an ongoing bearish trend. It seems probable that the pair might revisit its mid-2022 lows of approximately 0.049 in the coming months.
Ether Faces Demand Headwinds and Inflation
While decreased spot trading volumes on major cryptocurrency exchanges hint at a broader decline in demand for cryptocurrencies, Ether appears to be disproportionately impacted by this slump.
Recently, a series of Ether futures Exchange Traded Funds (ETFs) was launched in the US. Despite significant anticipation, these ETFs reported underwhelming trading volumes, implying institutional investors are currently holding back.
This tepid response aligns with the observed trend; Ether futures trading volumes have been dwindling since March. Data from The Block reveals that Ether futures trading volumes dropped to approximately $250 billion in September, a significant decline from around $770 billion recorded in March.
Demand indications from trading data aren’t the only signs of waning interest.
Several on-chain indicators, including active user count, transfer numbers, total transfer volume, and new address creation, have plateaued for a while now.
This has recently resulted in decreased gas fees and Ether’s supply becoming inflationary.
According to Glassnode, the Ether supply recently stood at slightly above 119.98 million, an increase from just below 119.9 million at the end of August.
Ether staking was a shining beacon for the token earlier this year.
However, the returns on ETH staking are consistently under 4% now, whereas long-term US government bonds offer closer to 5%.
Given that these bonds are viewed as a risk-free investment, investors might lean towards the more secure bond market instead of taking a gamble with Ether for a diminished return.
Bitcoin Looks Like the Better Near-term Bet
In addition to technical challenges and waning demand, Ether confronts heightened regulatory scrutiny in the US compared to Bitcoin.
Indeed, Bitcoin remains the sole cryptocurrency that the present SEC leadership has openly declared they don’t regard as a security.
In 2023, the SEC has been notably aggressive, taking legal actions against prominent US companies and categorizing various cryptocurrencies as securities.
Although the SEC hasn’t directly labeled Ether as a security, SEC Chairman Gary Gensler previously expressed his belief that ETH falls under this classification.
Consequently, the uncertain regulatory landscape for ETH in the US will keep investors cautious until more clarity emerges. This clarity might arise from either 1) Congress enacting clear-cut cryptocurrency laws or 2) a succession of significant setbacks for the SEC in its legal battles against US crypto enterprises—a conclusion that doesn’t seem imminent.
Bitcoin, therefore, stands as the crypto sector’s refuge.
With increasing positive narratives surrounding Bitcoin expected in 2024, especially given the anticipated SEC approval for multiple spot Bitcoin ETFs and the upcoming halving event in April, pivoting to the leading cryptocurrency appears to be a strategic move at this time.