ETH Slumps To 15-Month Low Against BTC

Ether is now trading at a 15-month low against Bitcoin amid speculation regulators may soon greenlight a spot BTC ETF and anticipation for next year’s Bitcoin halving. Meanwhile, monthly ETH issuance has outpaced ETH burned for the first time since The Merge.

ETH last traded hands for 0.0575 BTC, with daily price action trending at its lowest level since last July, according to TradingView. Ether is now down 26.3% against Bitcoin since early January.

Ether Supply Inflates

Ether captured the imagination of investors in the latter half of 2022, with The Merge promising to transition the network to Proof of Stake and realize a deflationary Ethereum.

While The Merge ushered reduced new Ether issuance by around 90%, a recent decline in on-chain activity culminated in Ethereum’s first inflationary month since last December. More than 30,100 ETH ($48M) entered supply over the past 30 days, according to Ultra Sound Money.

However, Ethereum’s supply is down by roughly 272,000 ETH ($432.5M) since The Merge went live. The upgrade also reduced energy consumption by more than 99.9% by booting Proof of Work miners from the network.

Layer 2 Migration

While the transaction volume, burn rate, and fees on the Ethereum mainnet are in decline, Ethereum’s Layer 2 ecosystem is booming.

Combined throughput on L2 overtook the Ethereum mainnet 12 months ago, with the two metrics trending competitively until Layer 2 activity shot up with the launch of ZkSync Era and Polygon ZkEVM in March. Linea and Mantle also launched in July, while Coinbase deployed Base in August.

While L2s enjoyed a 20% throughput lead over the mainnet in early February, Layer 2s are now processing more than 5.5 times more transactions than the mainnet, according to L2beat.

ZkSync Era is giving the Ethereum mainnet a close run for its money by monthly throughput with 29.6M and 30.2M transactions respectively. Base closely follows with 28.6M as well.

LSTs Centralize Staked Ether Supply

The Merge has also given rise to new challenges for the Ethereum network to confront, with liquid staking tokens (LSTs) threatening to centralize the supply of staked Ether. LSTs are yield-bearing tokens offering holders exposure to Ethereum staking yields.

Lido, the leading LST provider, currently controls one-third of all staked Ether, translating to 7% of ETH’s supply having been converted to Lido’s stETH token, according to Glassnode. Further, the Lido protocol is earning 0.5% of newly minted ETH.

Lido’s growing dominance comes in spite of prominent community members calling on it to use economic disincentives such as raising fees to drive down adoption. Vitalik Buterin, Ethereum’s chief scientist, recently urged staking providers to target a staked Ether dominance of no more than 15%.

Bitcoin Bull Case

While Ethereum is still coming to terms with its post-Merge reality, Bitcoiners are anticipating bullish news over the horizon.

Bitcoin’s next halving event is expected to take place at the end of April. The halving is a four-yearly event that reduces the issuance of new BTC by 50% that has historically preceded bullish market cycles.

While the Ethereum community is also gearing up for its forthcoming Dencun upgrade, the technical nature of calldata compression and Layer 2 scaling has prevented Dencun from emerging as a mainstream narrative.

Bitcoin investors also anticipate that the U.S. Securities and Exchange Commission will soon approve a spot Bitcoin exchange-traded fund (ETF). BlackRock, the world’s largest asset manager, filed for a spot BTC ETF in June, prompting a wave of copycat applications.

On Oct. 9, Eric Balchunas, a senior ETF analyst at Bloomberg, tweeted that he expects a spot Bitcoin ETF to receive regulatory approval by the end of the year, citing dialogue between the SEC and prospective issuers.

“The fact that they are actively engaging [with] issuers on their current filings (via comments, which hasn’t ever happened [before]) we think appeal unlikely and denial unlikely,” Balchunas said. “We holding line at 75% odds approval by end of year.”

Ark Invest and 21Shares also filed applications for spot Ether ETFs last month.