Why Ethereum Isn’t Seen as Money Yet

• Ethereum’s Steady Decline: A Result of Falling Transaction Fees
• While Major Layer 2 Solutions Gain Traction, Ethereum Faces Challenges

In recent times, the notion of Ethereum as money has been a topic of considerable debate. Since April, Ethereum [ETH] has underperformed significantly when compared to Bitcoin [BTC]. As a leading player in the altcoin sector, expectations were high for Ethereum to spearhead a bullish trend among altcoins. However, ETH is currently grappling to maintain its position in the cryptocurrency market.

The ETH/BTC trading pair has exhibited a consistent downtrend beginning in April 2023. Despite support in June 2022 at the 0.049 mark, the relentless decline over the last six months has plunged ETH/BTC to depths not experienced since April 2021.

Why Ethereum Struggles to Establish Itself as Money

Ethereum is facing significant hurdles in establishing itself as a form of money due to several factors. Investors holding Ethereum for the long term might feel uneasy about the cryptocurrency’s rapid devaluation against Bitcoin. This downturn can largely be attributed to inflation in the Ethereum network, exacerbated by the Dencun upgrade introduced in March 2024.

Source: YCharts

The Dencun upgrade launched EIP 4844, which effectively reduced transaction fees for Layer 2 solutions. Although this is advantageous for users, it has resulted in fewer ETH tokens being burnt, introducing slight inflation over the past six months, as visible in the increasing Ethereum supply chart.

Ethereum’s L2 Competition: Optimism, Arbitrum, and Beyond

Source: Santiment

Layer 2 scaling solutions such as Arbitrum [ARB] and Polygon Ecosystem Token [POL] have recorded increased transaction activity, with Optimism [OP] at the forefront. The growth and adoption of Layer 2 solutions highlight the increasing popularity of these platforms. Optimism’s performance is particularly notable, potentially bolstered by Coinbase’s Base L2 built on the Optimism Superchain.

For insights, see Ethereum’s [ETH] Price Prediction 2024-25

Despite these developments, Ethereum’s inflationary trend and its underperformance compared to Bitcoin suggest that the narrative of Ethereum as money is on shaky ground. Increased network activity might help stabilize this perception, yet the current market lacks faith in Ethereum’s monetary capabilities, as evidenced by the performance of ETH/BTC charts.

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