Why the Ethereum/Bitcoin ratio will continue to fall

Much has been said about Ethereum flipping Bitcoin in the past, particularly during the 2017 bull cycle when the ETH/BTC ratio peaked at 0.157.

However, fast forward to now, spurred by the ongoing banking crisis narrative, Glassnode data analyzed by CryptoSlate suggests a period of Ethereum underperformance ahead – putting paid to the idea of a “flippening.”

Bitcoin – Ethereum realized cap dominance

Market cap is the most popular way to value and compare cryptocurrencies. It is calculated by multiplying the current price by the circulating supply.

A variation on the market cap method is realized cap, which substitutes the current price in the above calculation with the price when the coins last moved. Proponents argue that this gives a more accurate valuation due to minimizing the effects of lost and irretrievable coins.

The chart below documents the Bitcoin and Ethereum market and realized caps since 2016. It shows a tightening between BTC and ETH in June 2017, especially when viewing the realized cap lines.

Around April 2019, the two began to diverge. But by May 2021, a further narrowing of the two bands occurred. However, Ethereum’s realized cap has started to dip in recent weeks, with Bitcoin’s holding relatively steady.

The chart also plots BTC/ETH dominance, calculated by taking the BTC market cap and dividing by [(BTC market cap + ETH market cap) – 0.765]. The 0.765 figure visualizes the oscillator around a long-term mean value. It shows the market is beginning to leave a two-year-long period of ETH dominance.

Based on the current situation, markets are bracing for higher rates and banks continuing to tighten credit availability – a scenario generally favorable to risk-off assets.

Ethereum is considered a more risk-on, higher beta than Bitcoin, suggesting it will underperform versus the leading cryptocurrency going into a risk-off environment.

Ethereum fundamentals

Analysis of Ethereum fundamentals also suggests under-performance…