Ether has outperformed Bitcoin in recent weeks as the momentum of the Ethereum has strengthened.
3 reasons why the Ethereum has been rising faster than the price of Bitcoin in 2021 MARKET ANALYSIS
The price of Ether (ETH), the native cryptomeda of Ethereum’s blockchain network, has soared since the beginning of the new year. It has also outperformed Bitcoin (BTC) since January 1, gaining about 81% compared to 26% of Bitcoin in their respective dollar pairs in the year to date.
Cumulative for the year – Bitcoin, Ether. Source: Digital Assets Data
There are three main reasons why ETH has outperformed BTC in recent days. The factors are the accelerated growth of the Ethereum, the improved sentiment surrounding the DeFi and the current period of relatively low volatility of the BTC.
1-day ETH/BTC (Binance) chart. Source: TradingView.com
Ethereum is seeing rapid growth driven by DeFi
DeFi tokens have grown rapidly in recent times, led by large companies like Aave and SushiSwap, as reported by Cointelegraph.
The rise in DeFi tokens is partly fuelled by the rapid growth in the total allocated value (TVL) of the DeFi market, which estimates the amount of capital deployed in DeFi protocols.
With more than $24 billion, more capital is allocated to DeFi protocols than ever before, signalling massive demand. This is crucial to the momentum of Ethereum – and consequently its Ether token – because more and more applications and tokens depend on its network.
The growing number of users is shown by the massive increase in Ethereum gas rates. Although high transaction fees are not ideal, DeFi alliance partner Jacob Franek said this is a positive factor because it shows the willingness of users to pay, indicating genuine demand. He said:
„Cumulative fees, yes. It is the most direct measure of the aggregate willingness to pay (i.e. demand) for block space. Ethereum has the most valuable block space on the market today. Would it be better if individual rates were lower? Yes. This will come with the implementation of the second layer and other sizing efforts. ”
Ethereum daily transaction chart. Source: Etherscan.io
Other first-tier blockchain one protocols are growing with great anticipation to compete with Ethereum, such as Polkadot and Cosmos.
However, in the foreseeable future, the network effect of Ethereum and the combined value of DeFi protocols on Ethereum make it less likely that Ethereum’s dominance of the DeFi sector will be challenged in the short term.
BTC is consolidating with low volatility
Over the past few days, Bitcoin has mainly consolidated with low volatility, allowing many altcoins to recover. This has led to an increase in demand for altcoins with lower volume and liquidity.
The rise in Ether’s price coincides with what traders describe as „altseason“, a period when many altcoins rise together, especially when Bitcoin sees small price movements.
This other season – historically witnessed in the early months of the year – occurs when Bitcoin is changing and investors are looking for high-risk games. Altcoins tend to have higher price movements because their low liquidity makes them vulnerable to extreme volatility in short periods.
For retail and derivatives traders, the high volatility of the Altcoin market makes smaller cryptomoins more attractive, at least in the short term, to trade with Bitcoin.
Meanwhile, BTC/USD remains in an uncertain position, with some traders warning that Bitcoin may fall out of this range rather than continue to rise. If this happens, the altcoins are likely to take larger losses compared to the BTC. Jonny Moe, a cryptomino trader, said:
„Every time I start to convince myself that the trend is bullish, the more I look at this chart, the more I start to think it’s going to fall again. I really feel like it’s going to break and we’re going to close the week in red, I can’t get rid of that impression. ”