Ethereum trails bitcoin since Fed's September rate cut amid weak institutional demand: Kaiko Research

Additionally, the ETH/BTC ratio has fallen to its lowest level since April 2021, dropping below 0.04 in October, according to a report from Kaiko Research released on Monday. The report noted that this decline highlights Ethereum’s slower rate of institutional adoption compared to Bitcoin.

Kaiko Research analysts said the persistent gap between Ethereum and Bitcoin’s performance can largely be attributed to the latter's dominant first-mover advantage with institutional investors. They cited open interest in Bitcoin CME futures reaching record highs recently, whereas Ethereum futures on CME remain comparatively low, standing at 7,300 contracts (with a notional value of $970 million).

"Demand for Ethereum has also been sluggish on spot markets. In October, Ethereum underperformed most altcoins in volume. The volume gap between Ethereum and the top 50 altcoins increased to its highest level since March," Kaiko analysts said.

Ethereum could gain from substantial institutional shift

Bitwise head of research for Europe André Dragosch pointed out that Ethereum's overall on-chain capital flows continue to trail behind Bitcoin, making a sustained trend reversal unlikely without a more substantial shift in institutional interest.

“We would need to see a large-scale reversal in Ethereum’s on-chain capital flows, similar to what happened in mid-2021, for a sustained outperformance," Dragosch said.

Notably, in November 2021, ether reached an all-time high of over $4,800 alongside bitcoin’s peak of over $68,000. Since then, bitcoin has exceeded its previous record, reaching a new all-time high of over $73,000 in March of this year. In contrast, ether has yet to reclaim its November 2021 highs.

In a related development, Ethereum co-founder Vitalik Buterin recently posted two articles outlining potential developments for the Ethereum protocol, focusing on technical advancements such as achieving single-slot finality and scaling solutions via Layer 2 technologies. While these advancements aim to enhance Ethereum’s infrastructure, analysts believe they do little to address immediate investor concerns.

Coinbase research analyst David Duong emphasized that these developments won’t significantly impact Ethereum’s appeal in the short term.

"They don’t directly address Ethereum holders’ interests in how Ethereum could maintain its appeal as the leading smart contract platform by enabling a wider range of applications," Huang said in a recent LinkedIn post. "The effect on Ethereum price is thus neutral overall. For the time being, we expect Ethereum performance to be indexed more to exogenous factors like the outcome of the U.S. presidential elections." 

Solana price appreciates amid wider downturn

Over the past 24 hours, market sentiment has shifted slightly in favor of altcoins, with solana seeing the most notable gains, up around 3%, while bitcoin and ether posted losses.

This change in market dynamics is attributed to increased stablecoin liquidity, according to Bitget Research Chief Analyst Ryan Lee, who noted that the market capitalization of fiat-backed stablecoins has hit a record $160 billion. This surge in liquidity signals substantial purchasing power, which could drive altcoin growth.

"As sentiment improves, we could see altcoins benefiting from this influx of liquidity," Lee said in an email to The Block.

Outlier Ventures Head of Research, Jasper De Maere, offered a cautiously optimistic outlook for the short to medium-term crypto market. "Bitcoin has shown remarkable resilience despite uncertainty in traditional markets, fueled by geopolitical tensions and overstretched equity valuations," he told The Block.

De Maere said that increasing global money supply, particularly with China's growing fiscal spending, has contributed to a favorable macroeconomic environment for cryptocurrencies. Additionally, inflation in the U.S. is nearing 2%, while inflation in the U.K. recently surprised to the upside, further fueling expectations for rate cuts and potential market stimulus.

"However, it’s important not to get overly enthusiastic about risky assets in the short term," De Maere cautioned. "While inflation has been less sticky than feared earlier this year, the possibility of inflation flaring up again remains. This could result in rates staying higher for longer than currently anticipated, which would be a risk to markets, including crypto."