Ethereum's Ether Has Fallen Out of Investor Favor and How

• ETH's options-based probability density function shows just a 10% chance of prices testing the year-to-date high of $4,000 by the end of December.
• ETH faces headwinds from weak fundamentals.

Ethereum's ether ETH$3,865.78, once viewed as the shiny silver to bitcoin's BTC$107,247.80 gold, has only risen 36% this year, significantly trailing behind BTC's impressive 109% surge.

Such is the investor aversion toward ETH that, at the going market rate of $3,100, the cryptocurrency is still well below the record price of $4,832 in 2021, while BTC trades at lifetime highs above $90,000.

The underperformance, which makes ETH feel more like palladium struggling to keep pace with gold, is expected to continue well into the year's end, as new research by Amberdata shows only a 10% chance of ether topping the first quarter high of around $4,000 while traders bet on BTC setting new highs above $100,000.

The chart shows the probability density function (PDF) and cumulative distribution function (CDF), highlighting the probability of ether trading at various price levels over several time frames. The graphic is derived from ether options trading on the dominant crypto options exchange Deribit.

A taller peak at a certain price indicates a greater probability of prices reaching that level and vice versa.

At press time, traders assigned just a 10% probability of ether topping the $4,000 mark by the Dec. 27 expiry. It's a sign that the expected regulatory shift away from enforcement actions against decentralized finance and other crypto sectors under Trump's presidency is yet to galvanize investor interest in ETH, even though it has done so for the so-called DeFi coins.

Amberdata attributes ETH's dour outlook to weak fundamentals.

"ETH faces serious headwinds as the value proposition of “sound money” (aka deflationary supply due to transaction fee burn) has flipped to inflation supply as nearly all DeFi transactions are being executed on L2s as opposed to ETH L1 itself. I believe that’s drastically dragging prices down," Amberdata's Director of Derivatives Greg Magadini said in a newsletter to clients.

Last week, at the Ethereum community's biennial Devon gathering, influential researcher Justin Drake proposed an ambitious overhaul of the oldest smart contract blockchain. Among other things, the Beam Chain proposal would cut block times to four seconds from the current 12, which would allow for more blocks, therefore more transactions to be processed. Those improvements, in theory, could lead to more transactions being conducted on the main Ethereum chain rather than auxiliary layer-twos, which in turn might conceivably mitigate the supply issue identified by Magadini. However, Beam Chain could take years to see the light of day, if it does at all.

Irrespective of Ethereum's fundamentals, however, a potential acceleration in bitcoin's uptrend could eventually drag ETH above $4,000, while maintaining its underperformance relative to BTC.

UPDATE (Nov. 19, 2024, 16:38 UTC): Adds context about Beam Chain proposal in penultimate paragraph.