Research Summary
The report analyzes Ether’s performance in 2023, which, despite an 82% gain, underperformed compared to Bitcoin and other smart contract blockchain tokens. The report attributes this to Bitcoin-specific positives and a slower recovery in Ethereum’s on-chain activity. However, Ether outperformed traditional asset classes and the report suggests that Ethereum’s growing L2 ecosystem could support the token’s valuation in 2024.
Key Takeaways
Ether’s Relative Underperformance
- Ether’s 82% Gain: Despite a strong return of 82% in 2023, Ether underperformed compared to Bitcoin and other smart contract blockchain tokens. Bitcoin, for instance, is on track for a 162% gain in the same year.
Bitcoin’s Dominance in Recent Inflows
- Bitcoin’s Investment Inflows: Bitcoin-specific positives, such as progress on a potential spot Bitcoin ETF and instability among US regional banks, drove inflows into Bitcoin-focused crypto investment products throughout 2023. Net inflows into Bitcoin-focused ETPs totalled roughly $2 billion, compared to just $24 million for Ether-focused ETPs.
Ethereum’s On-Chain Activity
- Slower Recovery in On-Chain Activity: Ethereum’s mainnet’s on-chain activity recovered slower compared to other chains. For example, Solana’s NFT volume increased faster than Ethereum’s. This slower recovery may have contributed to Ether’s underperformance.
Ether’s Performance Compared to Traditional Asset Classes
- Outperforming Traditional Assets: Despite underperforming compared to Bitcoin and other crypto assets, Ether significantly outpaced traditional asset classes on both an absolute and volatility-adjusted basis in 2023.
Ethereum’s Future Prospects
- Prospects for 2024: The report suggests that developments in Ethereum’s growing L2 ecosystem could attract new users and support the token’s valuation in 2024. Ethereum’s modular development approach, which allows for activity to scale, could be a key factor in attracting new users.
Actionable Insights
- Monitor Ethereum’s L2 Ecosystem: Given the potential for Ethereum’s growing L2 ecosystem to attract new users and support Ether’s valuation, it would be beneficial to keep a close eye on developments in this area.
- Consider Diversified Exposure: With stiff competition expected in the Smart Contract Platforms market segment, the report suggests that taking diversified exposure to this crypto sector may be worth exploring.
- Assess Impact of On-Chain Activity: The slower recovery of Ethereum’s on-chain activity compared to other chains has been identified as a factor in Ether’s underperformance. Therefore, monitoring on-chain activity across different chains could provide valuable insights into potential performance trends.
