3 reasons why Ethereum may lag behind bitcoins in the short term

Ether (ETH) the price exceeded the bitcoins (BTC) by 173% from 28 March to 15 May. The incredible bull caused the token to reach a historic high of $ 4,380. However, as cryptocurrency markets began to plummet on May 12, the trend began to reverse and Ether has not reached a good 25% since then.

One might say that this is a technical adjustment after a strong rally. Although partly explained by this step, it excludes some critical factors, including the rapid advance of network competitors with smart contracts and the first adoption of bitcoin as the official currency.

Price of ether / bitcoin at Binance. Source: TradingView

Notice how the ETH / BTC ratio picked up again on June 8, reaching 0.77, although the price of Ether remained 36% below the all-time high, hovering close to $ 2,800. To understand what may have been the driving force behind this ratio, analysts must separately analyze the Ether and Bitcoin price drivers.

Mike Novogratz may have been misinterpreted in his interview

Ether’s bull run potentially got another leg due to the intense praise of institutional investors. Traders could pick up a sense of urgency, known as FOMO, and immediately shift their bitcoin exposure toward the front altcoin.

May 13 New Yorker magazine published an interview with Mike Novogratz, founder and CEO of Galaxy Digital. In an interview, Novogratz said:

“Suddenly, you have decentralized finances and the NFT on Ethereo at the same time as roughly wild accelerating growth.”

Novogratz was then asked how much higher Ether could get, to which he replied:

“You know, it’s dangerous to make predictions on the rise. But could it get to $ 5,000? Of course yes.”

While the holder of the ethereum could interpret it as a prediction, others could understand it as a wild estimate, probably depending on the general conditions of the cryptocurrency.

About a week later, however, a report from Goldman Sachs revealed that the global investment bank believed that Ether had “a high chance of overtaking bitcoin as the dominant store of value.” Interestingly, one of the main quotes in the report came directly from Novogratz’s interview with the New Yorker.

At its peak, the Binance Chain controlled 40% of DEX’s volume

While Ethereum maintained its 80% dominance over the net value locked in decentralized financing (DeFi) applications, Binance Smart Chain (BSC) achieved a 40% market share on the DEX exchanges.

Daily volume PancakeSwap DEX vs. top 10. Source: DeBank

The successful growth of the DeFi industry and the Alternate Token (NFT) markets has caused a heavy congestion on the Ethereum network, raising medium fees to $ 37 in mid-May. This bottleneck triggered the departure of activity to competing networks and PancakeSwap was in the best position to capture this flow.

Related: Here’s why one analyst says bitcoin will outperform ethereum in the short term

To make matters worse, important DeFi projects have expanded to the Binance Smart Chain Harvest Finance revenue aggregator and decentralized stock market aggregator 1 inch. Investors quickly realized that this trend could continue because the competitive smart-contract network provides an easy solution for dApps looking for cheaper alternatives.

No country accepts the “ether standard”

Bitcoin may have had partial performance in the last 30 days because it failed to break the $ 42,000 resistance several times. However, a significant milestone was reached when El Salvador became the first country to make bitcoin legal tender June 12.

After the Central American countries passed the decision-making law, a handful of other Central and South American countries began to discuss the benefits of a similar approach.

Ethereum is redesigning it to change the speed of publishing and the way entities get paid for network security by moving away from the Proof of Work model. Bitcoin, meanwhile, ensures that each upgrade is backward compatible and adheres to a strict monetary policy.

This is the main reason why Ether will not overcome bitcoins in the next 12 months, or at least until there is a better understanding of how network ethereum will dominate in smart contracts.

Professional investors avoid uncertainties at all costs, and the cryptocurrency markets already represent a lot. There is no reason for institutional investors to ignore risks while competing networks eat Ethereum lunch.

The views and opinions expressed herein are those of an opinion author and does not necessarily reflect the views of the Cointelegraph. Every investment and business move involves risk. You should do your own research when making your decision.

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