While Ethereum’s momentum is getting stronger, it has been outperforming Bitcoin in the past few weeks.
The price of Ethereum (ETH), the native cryptocurrency of the Ethereum blockchain network, has been rising rapidly since the beginning of the new year. Moreover, ETH has outperformed Bitcoin (BTC) since January 1, and has increased approximately 81% compared to the 26% increase in Bitcoin from the year-to-date.
There are three main reasons why ETH has surpassed BTC in the past few days. The factors are the accelerated growth of Ethereum, the developing sensitivity regarding DeFi and the relatively low volatility period of BTC.
Ethereum sees rapid growth supported by DeFi sentiment
Led by big companies like Aave and SushiSwap, DeFi tokens have been skyrocketing in recent times.
The rally of DeFi tokens is partly fueled by the rapidly growing locked total value (TVL) of the DeFi market, increasing the amount of capital allocated to DeFi protocols.
At over $ 24 billion, DeFi protocols have more locked-in capital than ever before. Locked capital signals a large demand. This development is crucial to Ethereum’s momentum and therefore to Ether tokens, as more and more applications and tokens rely on Ethereum’s network.
The increasing number of users is demonstrated by the enormous increase in Ethereum gas fees. Jacob Franek, one of the partners of the DeFi alliance, said that while high transaction fees are not ideal, this is a positive factor because it indicates the true demand by showing users’ willingness to pay.
Other first layer blockchain protocols such as Polkadot and Cosmos are growing in anticipation of competing against Ethereum.
However, in the foreseeable future, the network impact of Ethereum and the combined value of DeFi protocols over Ethereum makes it less likely that Ethereum’s dominance in the DeFi industry will be questioned in the short term.
BTC consolidates with low volatility
Over the past few days, Bitcoin has mostly been consolidating with low volatility, allowing many altcoins to catch up. This resulted in increased demand for low-volume and liquidity altcoins.
The rise in Ethereum’s price coincides with what traders describe as the altcoin season, when many altcoins gather in a row, especially when Bitcoin sees small price movements.
This altcoin season, historically witnessed in the early months of the year, occurs when Bitcoin changes and investors look for high-risk games. Altcoins often see larger price movements because their low liquidity makes them vulnerable to excessive volatility in short periods.
For retail and derivative traders, the high volatility of the altcoin market makes smaller cryptocurrencies more attractive to trade Bitcoin, at least in the near term.
Meanwhile, BTC / USD remains in an uncertain position, and some traders say that Bitcoin could fall from its price range instead of climbing higher. If this happens, altcoins are likely to see larger losses compared to BTC.