Why Ether May Potentially Outperform Bitcoin in the Year 2025
A Year of Lagging Behind, Now a Promising Turnaround
In 2024, ether spent most of the year trailing behind its cryptocurrency peers but has now firmly joined the rally sparked by bitcoin’s record-breaking climb. The price of ether crossed the $4,000 mark in December, although still below its all-time high of $4,900.
A Year of Comparison: Ether vs. Bitcoin
- Ether’s Performance: In 2024, ether gained around 53% compared to bitcoin’s 113% surge.
- Recent Performance: Since the U.S. election result, ether has increased by 39%, outperforming bitcoin’s 35% gain and signaling a potential resurgence driven by market optimism over president-elect Donald Trump’s anticipated pro-crypto policies.
Key Factors Driving Optimism
- Robust Staking Dynamics: The growth of staking contracts has been a significant factor in the recent surge in ether prices.
- Steady Transaction Fees: A stable transaction fee environment has also contributed to the optimism surrounding ether.
- Growing Institutional Interest: particularly through ETFs, is another key driver of the current rally.
Ether Futures
- Trading Volume: In 2024, nearly 12 million contracts representing a total value of $256 billion traded between ether and micro ether futures.
- Notional Volume: Thirty-nine percent of notional volume traded was transacted in Q4 2024 as the crypto markets reacted to the U.S. election results.
Large Open Interest Holders
Large open interest holders (designated by the CFTC as entities holding 25 or more contracts) reached new weekly records throughout December, indicating growing client interest in regulated solutions to manage ether risk.
Ether-Bitcoin Ratio
The ETH-BTC ratio, which measures ether’s performance relative to bitcoin and shows the number of bitcoin needed to buy one ether, reached its lowest level since launch on November 20 of 0.032857. This may be an indication that the bottom has been reached as we see improved regulatory outlook and an increase in institutional adoption.
What’s Behind Ether’s Rebound
1. Ether ETFs Outperform Bitcoin ETFs
- Net Inflows: U.S. spot ETH ETFs have received a cumulative $577 million in net inflows since their July 2024 launch.
- Investor Sentiment: Between November 25 and November 29, spot ether ETFs even surpassed the daily inflows of bitcoin ETFs.
2. Alt Season
Traders may now see the ETH/BTC ratio’s lower level as an opportunity for a potential gradual rotation from BTC to ETH and other alt coins. Typically, bitcoin leads the rally, then consolidates as ether and other alt coins catch up.
3. Staking Yields
Ether investors can generate extra returns on top of their holdings by staking or locking their coins in the network in return for rewards.
- Annualized Reward Rate: As of the time of writing, 28% of ether’s supply is locked in staking contracts with an annualized reward rate averaging 3%.
- Potential Uptick: There could be an uptick in ETH’s staking yield under a new administration, together with anticipated Federal Reserve interest rate cuts and continued upgrades to the blockchain.
4. DeFi, Smart Contracts, DAPPS, and NFTs
Ethereum’s value proposition extends beyond being a digital currency as it remains the dominant blockchain for building decentralized finance (DeFi) applications (DAPPS), smart contract platforms, non-fungible token (NFT) tokenized assets, and Web3 applications.
- Total Value Locked: The total value locked (TVL) in Ethereum-based DeFi projects has grown over the past few weeks, reaching $69.4 billion, according to DefiLlama.
- Rising Confidence: This surge suggests rising confidence in Ethereum as a platform for financial innovation.
5. Ether Upgrades
Ethereum implemented the Dencun upgrade on March 24, which reduced transaction costs for Layer 2’s and increased the Transactions per Second (TPS) at which they operate.
- Future Enhancements: The upcoming Pave fork in 2025 aims to improve protocol efficiency, enhance user experience, and expand data capacity.
Conclusion
All eyes are on what the Trump administration will bring and the implications for the entire crypto market. The growing interest of institutions in ether ETFs could signify a diversification of institutional portfolios, which were once largely focused on bitcoin.
