Ethereum has dropped 40% compared to BTC since The Merge

Since the implementation of The Merge, the cryptocurrency Ethereum (ETH) has experienced a significant drop against Bitcoin (BTC). According to on-chain data provided by CryptoQuant, the price of ETH has fallen approximately 44% against BTC since September 2022, when the Ethereum network performed the long-awaited upgrade.

The Merge marked Ethereum’s transition from a Proof of Work (PoW) consensus mechanism to a Proof of Stake (PoS) consensus mechanism, eliminating traditional mining and transferring transaction validation to a group of validators. This change brought expectations of improved network performance, but in practice, the impact on the price of ETH was the opposite of what was expected.

Prior to The Merge, ETH was trading at around 0.07909 BTC. However, since the update, the price ratio between the two cryptocurrencies has dropped to 0.0425 BTC, the lowest level since 2021.

This performance puts Ethereum in a delicate position, with many analysts believing that the cryptocurrency could still face further devaluation. According to the CryptoQuant report, ETH could fall as much as 50% against BTC, reaching a ratio of 0.02 BTC, before being considered undervalued by investors.

Ethereum Performance Post-The Merge

Another relevant issue for ETH’s continued decline compared to BTC is the performance of Ethereum-based exchange-traded funds (ETFs).

Since the launch of these ETFs in the United States, the asset has registered an 18% devaluation between July 23 and September 9, 2024, accumulating capital outflows of more than 568 million dollars. This shows that the ETFs have not acted as growth catalysts for the price of ETH, contrary to what many investors expected.

Additionally, the “Dencun” upgrade, which introduced temporary data storage on Ethereum’s Layer 2 solutions, further reduced buying pressure on ETH as fewer users need the asset to pay transaction fees. This change has resulted in a 99% drop in Ethereum’s Layer 1 fees since March 2024, according to Token Terminal.

Another critical point is the increase in ETH supply after the “Dencun” upgrade, which reverted the asset to an inflationary state, with more ETH in circulation. This inflation reduces the relative value of the asset, further putting pressure on its price.

According to analysts, the future of ETH will depend on how the Ethereum network responds to these structural changes and how users continue to adopt Layer 2 solutions. While Ethereum remains one of the largest blockchain networks in the world, its significant decline relative to Bitcoin raises questions about its long-term competitiveness.

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