Why is Ethereum losing market share to Bitcoin?

Ethereum’s native token, Ether ( ETH ), plunged to its lowest point in three years against Bitcoin ( BTC ) on Aug. 5 amid the global market upheaval. This sharp decline dragged the ETH/BTC year-to-date returns down by 25%.

Ether is persistently underperforming Bitcoin despite the long-awaited launch of its spot exchange-traded funds (ETFs) in the United States, which—as many analysts predicted —could become a catalyst to draw institutional capital to the Ethereum market. 

Solana is beating Ether

Ethereum's growing underperformance versus Bitcoin aligns with its declining dominance against its top blockchain rival, Solana ( SOL ).

Notably, the SOL/ETH pair has risen by 10.75% in the last 24 hours to reach a new record high of 0.064 ETH on Aug. 8. This surge aligned with the launch of spot Solana ETFs in Brazil .

Meanwhile, it is part of a rebound that started in June. Since then, the pair has bounced by approximately 75%.

Poor Ethereum ETF debut compared to Bitcoin

The much-anticipated launch of spot Ethereum ETFs in the US met with a surprisingly cold response from the investors. Since these investment vehicles went live for trading on July 23, they have witnessed $387.7 million in outflows, according to Farside Investors data .

In comparison, Bitcoin ETF flows in the first two weeks were net positive after their launch on Jan. 11. 

Bitcoin is primarily seen as a “store of value." On the other hand, Ethereum is viewed as a platform for decentralized applications (DApps) and smart contracts. This fundamental difference can influence traditional investors’ preferences.

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For instance, according to Coingecko , only six public companies hold Ether as a reserve asset compared to 29 companies in Bitcoin’s case.

Ether rides descending channel

From a technical viewpoint, Ether's decline versus Bitcoin is part of a downtrend that has been occurring inside its prevailing descending channel since September 2022. 

In May this year, ETH/BTC tested the channel's upper trendline at around 0.056 BTC, and it has since corrected by up to 30%. Interestingly, the same upper trendline aligns with two other resistances, namely the 50-week (red) and the 200-week (blue) exponential moving averages (EMA).

Nonetheless, as of August, Ether was testing the channel's lower trendline for a rebound, with its potential upside target around 0.050 BTC. This level coincides with ETH/BTC's 0.236 Fibonacci retracement line.

The possibility of a rebound move increases further due to Ether's weekly relative strength index (RSI) reading at 34.60, just over four points away from its oversold threshold level. An oversold RSI typically precedes a period of rebound or consolidation.