Ether trails bitcoin and solana in 2024. What that means for crypto portfolios.

By Frances Yue

Ether has significantly underperformed other major cryptocurrencies such as bitcoin and solana this year, as exchange-traded funds investing in the second-largest cryptocurrency saw sluggish flows.

Ether (ETHUSD) has risen 6.9% so far this year, well below the 37.5% gain seen by bitcoin during the same period, according to Dow Jones Market Data. Solana (SOLUSD), often seen as a competitor to ether, has advanced 25%.

The lack of narratives supporting institutional ether ownership has led to disappointing flows with ether ETFs, which contributed to more downside of the crypto, according to Jake Ostrovskis, over-the-counter trader at Wintermute.

Since ether ETFs started trading on July 23, the products have seen a total outflow of $480.4 million as of last Wednesday. In comparison, bitcoin saw a total net inflow of $309 million during the same period. In its first 27 days of trading, bitcoin ETFs saw a net inflow of $5.2 billion.

There isn't a strong enough narrative about why investors should purchase ether, as the crypto has been experiencing an "identity crisis," according to Joe McCann, founder and chief executive at crypto investment firm Asymmetric.

Ether, which has become inflationary again with its supply increasing since April, may not serve as a "store of value" like many bitcoin bulls touted it to be, McCann said in a call. To be sure, bitcoin has mostly failed to serve as a "store of value" as well, as the crypto is often traded as a risky asset. Still, bitcoin supporters argued that certain characteristics of the crypto point to such a potential, as bitcoin (BTCUSD) has a fixed maximum supply of 21 million.

On the other hand, some Ether advocates have touted the blockchain's potential to be a "global supercomputer," but it faces intense competition from other networks such as Solana, which many said was faster and has lower transaction fees, according to McCann.

Due to ether's underperformance, many traders have been longing bitcoin and solana versus ether so far this year, noted McCann.

It's unlikely for ether's underperformance to change anytime soon, McCann said. "The fundamentals don't necessarily line up for greater price appreciation," noted McCann. Due to the limits in scalability Ethereum faces, developers often opt for blockchains built on top of it, which cannibalizes the value of ether, said McCann.

Still, Kavita Gupta, founder and partner at crypto venture capital firm Delta Blockchain Fund, said bitcoin and ether prices should not be compared apples to apples. Ether's value is not reflected just by the crypto's price, but also in the total value locked on the blockchain, Gupta said in a call.

Ether has about $46 billion value locked on it, the highest among all blockchains, though the total value locked on Ethereum has fallen 15.9% over the past month.

-Frances Yue

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09-03-24 1412ET

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