Ethereum Faces Identity Crisis as Bitcoin Dominance Rises, Market Challenges Persist  

• Ethereum’s transition to an inflationary model challenges its role as a cryptocurrency, as Bitcoin continues to gain market dominance.  
• Bitcoin’s market share reached its highest level since April 2021, despite an 86% drop in fees during the third quarter.  
• Ethereum’s Dencun upgrade spurred layer 2 growth, but the mainnet’s all-time low fees have undermined its deflationary narrative. 

The cryptocurrency market faced significant challenges in Q3, with Ethereum encountering inflationary pressure and Bitcoin’s market share continuing to grow. While on-chain fees showed a slight recovery in September, the overall picture remains concerning for Ethereum as fee reductions impact its performance.

Ethereum Faces Inflationary Shift 

Ethereum’s identity is being redefined. Once viewed as a deflationary asset, it now faces inflation, challenging its role as a cryptocurrency. Rising concerns over its economic model follow the introduction of layer 2 solutions and declining fees on the mainnet. These changes have contributed to Ethereum’s underperformance in the market, which has led to doubts about its future as a leading digital currency.  

Lucas Outumuro, head of research at IntoTheBlock, highlighted the fee issue in a recent analysis. Despite a slight increase in on-chain fees in September, Ethereum continues to see substantially reduced fees. This decline has had a major effect on its market performance, with investors appearing to reject the idea of Ethereum as money. Bitcoin, meanwhile, has seen its market share increase to levels not observed since April 2021, even as its price remains stable.  

Bitcoin’s Dominance Grows  

While Ethereum’s fees and market performance falter, Bitcoin’s share in the cryptocurrency market has climbed steadily. The divergence in price and market response between the two leading cryptocurrencies is notable, with Bitcoin maintaining its status as a store of value. Despite an 86% drop in Bitcoin fees during the quarter, its dominance has reached new heights. In contrast, Ethereum and altcoins continue to reach yearly lows, further contributing to the disparity.  

The Impact of Ethereum’s Dencun Upgrade

Ethereum’s transition to a more inflationary model is further complicated by its recent Dencun upgrade, which introduced EIP-4844. This update has had a significant effect on Ethereum’s economics, driving layer 2 transaction volumes while also lowering mainnet fees to historic lows. Lower fees mean fewer tokens are being burned, reversing the deflationary narrative that once defined Ethereum.  

Ethereum’s struggles are most evident in its falling ETH/BTC ratio, which has dropped nearly 30% since the Dencun upgrade. This decline underscores the ongoing “identity crisis” for Ethereum. Currently trading at $2,390, Ethereum is over 50% below its all-time high, raising further questions about its future trajectory.