Ether could outperform bitcoin in 2024, according to ETC Group Head of Research André Dragosch, who noted that the potential reversal of ether's relative underperformance compared to bitcoin in 2023 will be propelled by its technological advancements and Ethereum's position as a leading smart contract platform.

"Ether underperformed bitcoin over the past 12 months, however, ether could outperform bitcoin over the coming 12 months," Dragosch told The Block. 

Ether price appreciation

In a recent ETC Group report sent to The Block, Dragosch pointed to factors that would encourage ether's price to appreciate, including the deflationary "burn mechanism" introduced with the Ethereum ETH -3.44% Improvement Proposal EIP-1559 in August 2021.

Dragosch added that this reduction in ether's supply, when combined with the attraction of ETH staking yields, could see the second largest digital asset by market cap outperform bitcoin. "Ether's net supply issuance amounts to minus 1.1% per annum, as approximately 1.84% per annum are currently being burnt. Traditional investors can think of the staking yield as some kind of equity dividend, while the burn rate can be considered as an equity buyback yield," he said.

Despite these dynamics that point to price appreciation for ether, Holborn COO David Schwed told The Block that "bitcoin's established role and stability position it to potentially outperform ether in the long term."

Ether to 'mean revert' in 2024

Dragosch added that "ether to bitcoin's 12-months relative performance has historically shown a strong tendency to mean revert." He said that ether will likely return to its average relative performance against bitcoin, noting that with the exception of 2023, ether has consistently outperformed bitcoin since its inception in July 2015.

Coinbase's Crypto Market Outlook report also describes the expectation that bitcoin's performance compared to ether will undergo a mean reversion in 2024. "We think ether’s relative discount could be the precursor to some mean reversion in 2024," the Coinbase report said.

However, the report added that the Ethereum network's softer fundamentals have so far been a constraint to a meaningful price correction.

"Total transaction revenues on Ethereum year to date, up to the end November, declined by 29% compared to the same 11-month period in 2022, an inconsistency in onchain activity that is also making monthly ether supply deflation inconsistent," the Coinbase report added.