The first wave of spot Ethereum exchange-traded funds (ETFs) in the United States debuted on July 23, with inflows running above $100 million. While the positive flows signal a strong start for the funds, ether (ETH) may not witness the parabolic uptrend bitcoin (BTC) saw after asset managers launched its ETFs earlier this year.
In CryptoQuant’s latest weekly crypto report, on-chain experts explained that new money flows into digital asset products like ETFs would have a weaker effect on ETH than BTC due to the networks’ distinct multiplier effects.
ETH Multiplier Lower Than BTC
According to analysts, Ether’s multiplier is lower than bitcoin’s and has remained low in 2024. The multiplier is the ratio of the change in market capitalization to the realized capitalization. This means that Ether’s market value responds less to fresh inflow of investment money. For every $1 of fresh money invested in bitcoin, the asset’s market cap has grown by $5. However, Ether’s market cap has increased by $1.34 for every $1 invested.
The CryptoQuant report further outlined other factors that could hinder ETH from experiencing bitcoin’s post-ETF launch growth. One of them is Ether’s rising supply.
Since Ethereum developers implemented the Dencun upgrade on the network in March, Ether’s supply has been rising. Dencun introduced a mechanism that allowed for data blobs and reduced transaction fees drastically; lower transaction fees translated to a decline in burned ETH.
ETH Supply is Increasing
Before Dencun, Ethereum implemented upgrades that ensured the network remained deflationary by burning a part of transaction fees. Since Dencun, ether’s supply has been increasing at a high rate, the fastest since The Merge in September 2022. At press time, ETH had a total and circulating supply of 120.22 million but no maximum supply. Conversely, BTC has a supply cap of 21 million.
Analysts said the structural change in Ethereum’s monetary policy is causing the network to lose its ultra-sound money narrative. The ultrasound concept insists that Ethereum has the potential to become more sound than Bitcoin by using features that preserve purchasing power and reduce ETH supply over time.
Although the price of ETH appears to have bottomed out, and indicators signal positive momentum, the asset’s spot trading volume on centralized exchanges is still to be considered. Since January, ether’s spot volume has been 85% that of bitcoin in the same period and 58% that of the leading cryptocurrency since 2020.
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