Uncovering the Reasons Behind Ethereum’s Underperformance Against Altcoins

Ether (ETH) saw an increase of 6.2% from Nov. 3 to Nov. 5, however, it has been unable to break the $1,900 resistance. Despite the bullish trend, Ether’s 17% return over the last 30 days is still lower than Bitcoin’s (BTC) impressive 27% gain within the same time frame.

Legal complications and decentralization criticisms remain

Experts believe that Ether’s sub-par performance has something to do with the doubts surrounding Consensys, a major player in the Ethereum network. Ex-employees have launched a lawsuit against the company and its co-founder, Joseph Lubin. More than two dozen shareholders of the Swiss-based holding company, Consensys AG, allege that Lubin, one of the Ethereum founders, broke the “no-dilution promise” he made in 2015.

Consensys is in charge of creating and hosting projects that are essential for Ethereum. It was established in October 2014, almost nine months before the Ethereum blockchain was launched in the middle of 2015. To make matters worse, the High Court of Zug in Switzerland ruled in favor of the plaintiffs.

Regulatory issues have hindered the growth of the Ethereum community. The most recent concern is PayPal’s U.S. dollar-pegged stablecoin, PYUSD, which is based on Ethereum. This token is intended for digital payments and Web3 applications. On November 2, PayPal reported that it had received a subpoena from the U.S. Securities and Exchange Commission (SEC).

In addition to regulatory challenges, there has been significant criticism of the decentralization of financial applications (DeFi) in the Ethereum network. Chainlink, a popular choice for oracle services, quietly decreased the number of participants in its multi-signature wallet from 4-out-of-9 to 4-out-of-8. Analysts have pointed out the lack of governance by common users as a major problem.

Ether’s underperformance to altcoins is an evidence of other issues

Solana (SOL), XRP and Cardano (ADA) have all seen impressive returns of 75.5%, 37%, and 35% respectively in the last 30 days, outperforming Ether. This suggests that the factors preventing ETH from growing are not only related to regulatory pressure or reduced demand for DeFi and NFT markets.

One of the main issues facing the Ethereum network is the high gas fees associated with transactions, including those executed by smart contracts. The 7-day average transaction fee was last recorded at $4.90, negatively impacting the usage of decentralized applications (DApps).

Moreover, the total deposits of Ether on the Ethereum network have dropped to their lowest levels since August 2020. It’s important to note that this analysis does not take into account the effects of native Ethereum staking.

According to DefiLlama data, Ethereum DApps had a total value locked (TVL) of 12.7 million ETH on November 5, a decrease of 4% from the 13.2 million ETH two months ago. In comparison, TVL on the Tron network increased by 13% during the same period, while Arbitrum deposits remained at 1 million ETH. Data on DApps activity on the Ethereum network supports the idea of decreased activity.

Even excluding the significant 60% decline in the Uniswap NFT Aggregator, the average number of active addresses across the top Ethereum network DApps decreased by 3% compared to the previous month. In contrast, the top applications on Solana saw an average 18% increase in active users during the same period, according to DappRadar data.

Finally, on-chain activity indicates increased user deposits of ETH at celsius crypto exchanges. While this data doesn’t necessarily indicate short-term selling, the mere availability of coins is usually viewed as a precautionary measure by analysts.

The current daily ETH deposit average of 255,614 represents a 30% increase from two weeks earlier, indicating that holders are more likely to sell as Ether’s price approaches $1,900.

The data suggests that reduced TVL, decreased DApps activity and a higher rate of ETH exchange deposits are having a detrimental effect on the likelihood of Ether breaking the $1,900 resistance. The price level could be more challenging than initially thought and, for now, Ether bears can take a breath.