Ether's Fundamental Supply Outlook Better Than Bitcoin's, Analyst Says as ETH Tops $2.9K

Ether (ETH), the second-largest cryptocurrency by market value, has outpaced bitcoin's (BTC) rally over the past week, a trend that could continue because the fundamentals for Ethereum's native token appear more favorable than those of the larger crypto, according to Greg Magadini, Amberdata's director of derivatives.

Ether has gained over 16% in seven days to trade above $2,900 for the first time in nearly two years while the bitcoin price rose a more sedate 8.5% to $52,300, CoinDesk data show. The ether-bitcoin ratio has jumped nearly 7% to 0.055. CoinDesk Indices CD20, a measure of the wider crypto market, has rallied 10.7%.

ETH's outperformance comes after weeks of trailing bitcoin as traders focused on the debut of spot BTC exchange-traded funds (ETFs) in the U.S. and the impending quadrennial reward halving, which will cut the per-block BTC payout to 3.125 BTC from 6.25 BTC.

Read more: How the ‘Halving’ Could Impact Bitcoin

The focus could soon shift to the significant drop in ether supply since Ethereum transitioned to a proof-of-stake consensus mechanism in September 2022 in an upgrade dubbed The Merge, Magadini said. That contrasts with Bitcoin's halving, which just slows the cryptocurrency's rate of growth.

"Everyone is talking about the Bitcoin halving in April, but that’s nothing compared to the active 'REDUCTION' in ETH supply already occurring since Sept. 2022," Magadini said in a weekly newsletter. "ETH is the next play here! Low ETH/BTC ratio, actively finding a bid, [with ETH's] fundamental supply picture even better than BTC."

Since the Merge, 1,047,643 ETH ($3.05 billion) have been issued and 1,407,200 ETH burned, or taken out of circulation, causing a net supply reduction of 359,557 ETH or 0.209% year-on-year, according to data tracking website Ultrasound.money. Bitcoin's supply increased 1.71% in the same period.

The reduction represents a deflationary trend stemming from Ethereum burning a portion of transaction fees paid to validators. The Merge replaced miners with validators, removing a significant chunk of ether supply from the market.

Validators stake a minimum of 32 ETH to participate in the governing process and secure the blockchain in return for rewards. The number of ether staked or locked in the network surpassed 30.1 million, or 25% of the total circulating supply, early this month. The Dencun upgrade, due March, is expected to slash transaction costs.

In addition, the Securities and Exchange Commission is expected to greenlight spot ether ETFs in the U.S. later this year. Franklin Templeton, BlackRock, Fidelity, Ark and 21Shares, Grayscale, VanEck, Invesco and Galaxy, and Hashdex, have submitted applications to run one.

The SEC approved nearly a dozen spot BTC ETFs last month, paving the way for investors to take exposure to the cryptocurrency without having to own and store coins. Since the Jan. 11 debut, the ETFs have seen inflows of some $5 billion, generating excitement about the potential ETH ETFs.

"Combine this ETH 'Supply BURN' with dormant STAKED ETH and mix in a SPOT ETF actively putting ETH into cold storage … all of a sudden, the supply story for ETH is as bullish as fundamentals can get," Magadini said.

Read: Ether's RSI Warrants Your Attention. Here is Why