- Ethereum’s lower fees have contributed to its underperformance compared to Bitcoin.
- The Dencun upgrade boosted Layer 2 (L2) transactions but hurt Ethereum’s direct value accrual.
- Optimism’s token (OP) has surged due to increased L2 activity, while Ethereum faces challenges in retaining value.
The third quarter of 2024 proved to be challenging for most of the crypto market, especially Ethereum. According to a report by IntoTheBlock, Bitcoin’s market share hit its highest level since April 2021, while Ethereum and other smaller tokens experienced yearly lows.
Yet, despite the fees going down 86%, Bitcoin’s dominance has continued to increase. Confidence in the market is strong in Bitcoin as a store of value, and the gap it creates with ETH is not decreasing but instead increasing.
This is partly due to the recent bad performance of Ethereum as a financial asset. Whereas Bitcoin still seems to be a form of “money,” the Ether narrative has dug deep into its cash-flow mechanisms, creating a divergence between the two major cryptocurrencies.
Impact of the Dencun Upgrade on Ethereum Fees
The recent upgrade of Dencun miserably failed to bring the desired impact on improving Ether’s Layer 2 transactions. The EIP 4844, in this upgrade, drastically cuts down the cost of L2 transactions by more than 10 times, thus making the on-chain activity thick. Large Layer 2 networks like Base have seen record volumes of transactions, but on the other hand, Ether Mainnet fees have crashed to an all-time low.
Lower fees have meant less ETH is being burned, a factor that reversed its previously deflationary trend. Ethereum has now become inflationary, a factor that has raised concerns among investors who once viewed the asset as “sound money.” The drop in value accumulation thus pushed ETH into what some are calling an “identity crisis.”
Optimism’s Surge Amid Ethereum’s Struggles
On the other hand, while Mainnet fees fall for ETH, L2 tokens are thriving. Optimism, which fuels Coinbase’s Base L2, saw the price of its governance token OP soar 28% in the quarter. That increase is because of the growing transaction volume on Base now commanding 66% of market share for active addresses.
The revenue-sharing agreement signifies that some of Base’s revenues stream back to Optimism’s DAO, adding value to OP. In contrast, the ETH/BTC ratio has dropped close to 30% since the Dencun upgrade, which is indicative that ETH is far from holding its market position.
Nevertheless, Ethereum’s prospects are really uncertain, and its recent misfortunes undermine the suggestion that it will be able to maintain the “ultrasound money” narrative.
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