Ether (ETH) price has been on the rise this year, up by 58% year-to-date, but it has significantly underperformed compared to the market leader Bitcoin (BTC). In fact, the ETH/BTC price ratio has dropped to 0.063, which is its lowest level in nine months. Despite the upcoming Shapella hard fork of the Ethereum network, which is scheduled for April 12 at 10:27 p.m. UTC, analysts believe that the majority of the movement can be attributed to the upgrade.
The Ethereum network upgrade is expected to allow stakers to unlock their Ether rewards or stop staking entirely. However, with over 170,000 ETH withdrawals requested by April 11, traders are becoming more cautious until more information on ETH’s potential selling pressure becomes available. Additionally, Ethereum’s average transaction fee has been above $5 for the past five weeks, and the Shapella fork does not address this issue, despite minor improvements. This alone could lower the chances of a bullish breakout following the upgrade, as most decentralized applications (DApps) and projects will continue to prefer second-layer and competing networks.
Furthermore, volume at Ethereum-based decentralized exchanges (DEX) has fallen by 84% since a weekly peak of $38.2 billion on March 5. According to recent data for the week ending April 2, competing blockchains saw 60% lower volumes on average, indicating that Ethereum lost market share. Ethereum’s price underperformance relative to Bitcoin could also be attributed to the battle to keep Ethereum sufficiently and properly decentralized, as highly centralized custodial validators, as well as some semi-centralized players and staking pool operations that invest funds from tens of thousands of individual crypto wallets, are cited by some analysts like Paul Brody, EY’s global blockchain leader.
A look at the open interest in Ether options for the weekly expiry on April 14 shows that neutral-to-bullish call instruments outnumber protective put options by 36%, and 60% of bets were placed at $2,000 or higher. This could mean that those ETH options bulls may come up empty-handed as their bets are unlikely to generate a bullish breakout unless Ether’s price rises above $2,000. Additionally, Ether quarterly futures are trading at a slight premium to spot markets, indicating that sellers are requesting more money to postpone settlement. Futures contracts in healthy markets should trade at a 5% to 10% annualized premium — a situation known as contango, which is not unique to crypto markets. The premium on Ether futures is currently at 2%, down from 4% the previous week, showing no excessive short demand.
Based on Ether derivatives, there is no reason to believe professional traders expect a significant price correction as a result of the staking unlock. However, given the high transaction fees and declining DEX activity, the chances of a “buy the news” event are slim. Professional traders would have used derivatives instruments to bet against Ether’s price because the event was widely publicized, which hasn’t happened given the ETH futures’ premium. Unless the number of staking unlock requests significantly increases, Ether should remain near $1,900 for the foreseeable future.
In conclusion, the underperformance of Ether relative to Bitcoin could be attributed to several factors beyond the Shapella hard fork, such as high transaction fees, declining DEX activity, and the battle to keep Ethereum sufficiently and properly decentralized. Nevertheless, unless there is a significant increase in the number of staking unlock requests, Ether’s price should remain stable for the foreseeable future. Investors and traders should always do their research before making investment decisions and should be aware that every investment and trading move involves risk.