Ethereum (ETH) has seen a steep decline of approximately 65% against Bitcoin (BTC) since its transition to Proof-of-Stake (PoS) in 2022, raising doubts about the concept of it being ‘ultrasound money’.
Key Highlights:
- Rising fees and the growth of layer 2 solutions have compromised Ethereum’s deflationary appeal of ‘ultrasound money’.
- Ether’s performance lags behind Bitcoin as investors favor Bitcoin’s predetermined supply.
Disappointment in Ether’s ‘Ultrasound Money’ Narrative
The premise of ‘ultrasound money’ suggested that Ether would become more scarce than Bitcoin. Supporters believed that following the 2021 EIP-1559 upgrade, which began burning part of transaction fees and the sharp reduction in new ETH issuance post-2022 Merge, Ether would achieve deflation.
According to Ultrasound.MONEY, after the burn mechanism was activated in 2021, ETH’s new annual supply rate averaged about -0.19%.
However, since Ethereum’s shift to PoS in 2022, ETH’s supply has inflated at an estimated annualized rate of roughly 0.23%, although this is still lower than Bitcoin’s current annual inflation of 0.85%.
ETH/BTC Performance Chart
ETH/BTC three-day performance chart. Source: TradingView
Why Is ETH Underperforming BTC?
Ether’s market performance versus BTC partly stems from an investor preference for Bitcoin’s predictable fixed supply model, remarked analyst Handre. The unwavering 21 million coin limit and its predictable issuance scheme provide Bitcoin with a distinct appeal.
“Every scaling debate, every upgrade proposal, every attempt to change Bitcoin’s monetary policy has failed because the economic majority understands what they’re protecting.”
By contrast, the fluctuating monetary policies of Ethereum, particularly with its current modest issuance growth, create uncertainty. Handre emphasized:
“Every altcoin promises scarcity but delivers inflation by design. Ethereum abandoned its ‘ultrasound money’ narrative the moment it became inconvenient.”
The disconnect between expectations and reality for Ether has been highlighted further in recent market data, indicating that the asset has not secured a convincing upward trend in its dollar value.
This article does not provide investment advice. All investment and trading decisions involve risk, and readers should conduct thorough research.
