Ethereum (ETH), the second-largest cryptocurrency by market capitalization, has been showing strength against Bitcoin (BTC) in the past week. ETH has gained more than 22% against BTC, reaching a three-month high of 0.078 BTC on Jan. 17. There are several factors behind ETH’s bullish momentum, such as its growing network activity, its decreasing supply on exchanges, and its upcoming network upgrade.
One of the main reasons why ETH has been outpacing BTC is its accelerating growth in terms of network activity. According to data from on-chain analytics firm Santiment, Ethereum’s price dominance over Bitcoin has surged by 22.4% in the past week. This period also saw the creation of roughly 89,400 new Ethereum addresses per day, further underscoring the platform’s growing traction. Notably, a staggering 96,300 wallets were created on Jan. 16 alone.
Santiment also reported that Ethereum’s supply on exchanges is getting close to reaching its all-time low (since the opening week of trading) of 8.05%. This signals movement toward self-custody and staking, implying a reduced risk of an imminent sell-off, as opposed to a more concerning rising supply on exchanges. These on-chain metrics shed light on Ethereum’s current market strength and its potential to outperform Bitcoin in the short term.
Ethereum’s DeFi and NFT sectors continue to thrive
Another factor that has been boosting ETH’s price is the improving sentiment around decentralized finance (DeFi) and non-fungible tokens (NFTs), which are mostly built on the Ethereum blockchain. According to data from DeFi Pulse, the total value locked (TVL) in DeFi protocols has reached a new all-time high of $48.8 billion, with more than 11.5 million ETH locked. This represents an increase of 18% since the start of the year.
Similarly, the NFT sector has been witnessing a surge in popularity and demand, with record-breaking sales and volumes. According to data from NonFungible, the total sales volume of NFTs in the past week was $245.8 million, with an average price of $1,337. Some of the most notable NFT projects include CryptoPunks, Art Blocks, Bored Ape Yacht Club, and Loot. These projects have attracted millions of dollars in bids and offers, as well as celebrities and influencers.
Ethereum’s Dencun upgrade deploys Proto-Danksharding on Goerli
The third reason why ETH has been rising faster than BTC is its upcoming network upgrade, codenamed “Cancun-Deneb” or “Dencun”, which has gone live on the Goerli testnet, according to a Jan. 17 social media post from Ethereum developer Parithosh Jayanthi. The upgrade introduces a new feature called Proto-Danksharding, which is a precursor to the full implementation of sharding on Ethereum 2.0.
Sharding is a scaling solution that aims to split the Ethereum network into multiple parallel chains, or shards, that can process transactions simultaneously and increase the network’s throughput and efficiency. Proto-Danksharding is a simplified version of sharding that allows validators to switch between shards without having to synchronize the entire state of each shard. This reduces the overhead and latency of shard transitions and improves the user experience.
The Dencun upgrade is expected to be deployed on the mainnet in the first quarter of 2024, after being tested on the Goerli, Ropsten, and Kovan testnets. The upgrade will also include other improvements, such as the activation of the difficulty bomb, the reduction of the block reward from 2 ETH to 1.5 ETH, and the introduction of a new fee mechanism called EIP-1559, which will make ETH more scarce and deflationary.
