Ethereum (ETH) has not performed as well as Bitcoin (BTC) in terms of price growth after switching to the Proof of Stake (PoS) mechanism (i.e. “The Merge”). This phenomenon can be analyzed from multiple dimensions. The following are the key reasons and detailed explanations:
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### 1. **Differences in market environment and cycle**
- **Merger timing**:
The ETH consolidation (September 2022) occurred during a bear market cycle in the cryptocurrency market (BTC fell more than 70% from its November 2021 high), while BTC usually entered a rally cycle driven by the “halving narrative” before the 2024 halving (such as the rally from 2023 to date).
- *ETH merger benefits suppressed by bear market*: The long-term value of technological upgrades failed to offset the impact of overall market liquidity tightening.
- **BTC’s safe-haven properties**:
BTC has a clearer positioning as "digital gold" and is more favored by traditional funds amid macro uncertainties (such as the Fed's interest rate hikes and geopolitical conflicts), while ETH is more volatile as a "risky asset."
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### 2. **Short-term negative factors of PoS transformation**
- **Selling pressure of pledge unlocking**:
After the ETH merger, the staking withdrawal function (Shanghai upgrade, April 2023) was opened, and some early stakers chose to take profits, resulting in an increase in market supply. As of 2024, more than **30% of the staked ETH is still not unlocked**, and potential selling pressure continues to exist.
- **Staking income dilution**:
The ETH staking yield (about 3-5%) is lower than that of other PoS chains (such as SOL, ADA, etc.). Part of the funds flow to the high-yield ecosystem, weakening the short-term attractiveness of ETH.
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### 3. Regulatory risks suppress ETH valuation
- **Securitization controversy**:
The U.S. SEC explicitly regards ETH staking services (such as Coinbase and Kraken) as securities businesses, and may classify ETH itself as a security, causing institutional investors to be cautious about ETH.
- *BTC’s regulatory advantages*: BTC is generally recognized as a “commodity” with lower regulatory risks and is more easily recognized by traditional financial instruments (such as spot ETFs).
- **DeFi regulatory pressure**:
As the core asset of the DeFi ecosystem, ETH is more affected by the tightening regulation of decentralized protocols in the United States (such as the Uniswap lawsuit), further suppressing capital inflows.
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### 4. Deflation narrative fails to deliver on short-term expectations
- **The burning mechanism depends on network activity**:
The amount of ETH destroyed by EIP-1559 is highly dependent on the on-chain Gas fee. In a bear market, the transaction volume of applications such as NFT and DeFi has declined, resulting in a weakening of the deflationary effect of ETH (for example, the annual inflation rate of ETH in 2023 is only -0.1%, far lower than the peak of -2% in 2021).
- **BTC’s deflation is more certain**:
BTC's halving (supply is halved every 4 years) is a preset rule, and the market has clear expectations for its deflationary effect, while ETH's deflation depends on external demand and has higher uncertainty.
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### 5. **Fund diversion and narrative competition**
- **BTC “halving narrative” dominates the market**:
The BTC halving event in 2024 attracted a large amount of funds to be deployed in advance, forming a "self-fulfilling rising expectation" and squeezing the capital inflow of competing coins such as ETH.
- **Layer 2 and modular narrative differentiation**:
ETH's expansion depends on Layer2 (such as Arbitrum and Optimism), but the independent rise of Layer2 tokens (such as ARB and OP) dilutes ETH's value capture ability; while new asset classes such as Ordinals and Runes in the BTC ecosystem have enhanced BTC's on-chain activity.
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### 6. **The long-term value of technology upgrades has not yet been released**
- **Merger is only the first step**:
ETH’s transition to PoS is the starting point of the “three-step” plan (merger, sharding, and anti-censorship). Subsequent upgrades (such as Proto-Danksharding) will take several years to implement, and it will be difficult to reflect the actual effect of performance improvement in the short term.
- **Limited user perception**:
Ordinary investors pay more attention to price fluctuations rather than technical details, and ETH's energy efficiency improvement (reducing energy consumption by 99%) has limited impact on market sentiment.
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### Comparison summary: the core differences between ETH and BTC
| **Dimension** | **Ethereum (ETH)** | **Bitcoin (BTC)** |
|----------------|-----------------------------------|-----------------------------------|
| **Core Narrative** | Smart Contract Platform + Deflationary Assets | Digital Gold + Absolute Scarcity |
| **Regulatory risk** | High (securitization disputes, DeFi regulation) | Low (commodity attributes are clear) |
| **Supply Mechanism** | Dynamic Deflation (depends on network usage) | Fixed Deflation (halved every 4 years) |
| **Fund Preference** | High-risk preference funds (need ecological growth support) | Risk-averse funds (institutions, long-term holders) |
| **Short-term catalyst** | Layer2 adoption, staking yield | Halving, spot ETF approval, macro liquidity |
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### Future Outlook: Can ETH reverse its downward trend?
1. **The delayed effect of deflation**:
If on-chain activities surge in the next bull market (such as the explosion of AI+DeFi and chain games), the amount of ETH burned may far exceed the amount issued, pushing up the deflation rate (similar to 2021) and forming a positive cycle of rising prices.
2. **Regulatory Clarity**:
If the United States clarifies ETH's non-security status or approves an ETH spot ETF, it will release the potential for institutional funds to enter the market.
3. **Technology upgrade implementation**:
Upgrades such as sharding technology (Danksharding) and account abstraction (ERC-4337) may significantly improve the user experience and attract new users and developers.
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### in conclusion
The fact that ETH's growth rate is not as high as BTC's after switching to PoS is the result of multiple factors such as market cycles, regulatory risks, short-term selling pressure, and narrative differentiation, rather than a problem with the PoS mechanism itself. In the long run, ETH's technological upgrades and deflationary model still have potential, but its value release depends on ecological growth and improvements in the regulatory environment. In contrast, BTC's "simplicity" and safe-haven properties are more attractive to the market at this stage.
