Ethereum has more practicality due to its support for smart contracts. This feature allowed the altcoinin 2020-21 surpass Bitcoin in terms of growth just since the heyday of the DeFi and NFT markets tied to smart contracts. However, now Ethereum is losing power.
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The collapse in the first half of May is the third largeststablecoin UST of the Terra project led to a decrease in confidence in the entire sector of decentralized finance. Ethereum, with a 50% stake, did not stand aside - the amount of blocked funds collapsed from $75 billion to $51 billion in two weeks.
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However, the loss of DeFi capitalization is not due tonot only by undermining market confidence, but also by the overall macroeconomic environment. Since the beginning of the year, the Fed has taken a course on tightening monetary policy, which led to the renewal of the US dollar index of a nine-year high.
Due to Fed policy, institutional investorsshift money from high-risk assets to more conservative ones. This is reflected in crypto preferences, as Bitcoin has been called “digital gold” in recent years. As a result, weekly inflows to Bitcoin funds amounted to $63.4 million in May, while Ethereum funds recorded an outflow of $13.2 million.
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Declining interest in DeFi and NFT is reflected inthe return of the commission for the transaction to the minimum levels. Ethereum has a low throughput, so during the hype in the market, users are forced to increase the premium to the miners so that their transaction is processed as soon as possible.
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All of the above events lead tothat investment interest in Ethereum is declining. And if in relation to Bitcoin, cryptocurrency exchanges still record outflows to cold wallets, Ethereum inflows are at local highs.
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Bitcoin has another trump card - deflationarymechanism. Every four years there is a halving (halving the reward for creating a block), and the number of coins is limited to 21 million. Ethereum had a burn mechanism in August last year, but the influx still exceeds the amount of burned coins and there is no limit on issuance.
If inflation in the United States gets out of control inAccording to investor preferences, Bitcoin will once again take on the role of a savings asset and insurance against inflation. All other things being equal, this will lead to its further strengthening against Ethereum.
Analytical group StormGain
(platform for trading, exchanging and storing cryptocurrency)
