- Ethereum completed its transition to one proof-of-stake (PoS) mechanism on September 15, 2022.
- While ETH grew briefly at the beginning of the year, its price has been on a downward trend since April.
A year ago, Layer 1 (L1) blockchain led Ethereum [ETH]transitioned from a proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) mechanism.
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Under PoW, miners competed to solve complex mathematical problems to validate transactions and add new blocks to the blockchain. With the PoS consensus mechanism, validators stake their ETH to secure the network and validate transactions.
Ether ever since
While many predicted a price increase following the merger, the network’s native token, ETH, suffered a price drop in the few months that followed the transition. On November 10, the alt price fell to a four-month low of $1085 before staging a recovery to end the trading year above $1200.
While the general market recovered from the unexpected collapse of the cryptocurrency exchange FTX [FTT] In November 2022, the bullish sentiment in the first few months of 2023 re-entered the crypto market. Leading crypto assets led the way with significant price gains.
Bitcoin [BTC], for example, started the year exchanging hands for $16,500. As new demand flowed in and the overall market gained a semblance of stability, the coin’s price rose to a high of $30,000 within four months.
ETH shares a statistically significant positive correlation with BTC and also saw a jump in its value in the first quarter of 2023. For the first time since May 2022, ETH traded above the psychological price level of $2000 in April before a correction occurred.
Source: Santiment
While the ETH/BTC ratio rose for a while after the merger, the year so far has been marked by a steady decline.
The ETH/BTC ratio metric tracks the price of ETH relative to the price of BTC and is often used to measure the relative strength and weakness of ETH compared to BTC.
Data retrieved from Kaiko showed that the ratio stood at 0.08 after the merger. However, since then it has fallen steadily, from 0.08 to 0.07 in the first quarter of 2023 and from 0.07 to 0.06 in recent months.
Source: Kaiko
One reason for the decline in this metric could be the market’s expectation that the US Securities and Exchange Commission (SEC) will soon approve a spot Bitcoin ETF, while an Ethereum ETF does not seem feasible in the near term.
Historical precedents also show that BTC tends to outperform ETH in bear markets, hence the decline in the ratio.
Due to the decline in ETH’s value for most of the year, it has also seen a decline in cumulative trading volume since the merger.
The trading volumes of Ethereum and the top 30 altcoins were similar between September 2022 and January 2023. This was derived from the running sum of their trading volumes during that period.
However, as the overall market grew in January, altcoins began to outpace ETH, widening the gap in trading volumes.
Since the merger, the top 30 altcoins have seen nearly $1.5 trillion in volume, compared to $1 trillion for ETH.
Source: Kaiko
ETH Staking Grows Unabated
Despite the current market conditions, the interest in the network has increased since the merger. With 27 million ETH staked at the time of writing, the total stake amount has increased by 107% since September 15, data from Dune Analytics showed.
The growth in stakes on the network is also best reflected in the steady increase in the number of Lido Staked ETH (stETH) holders. Dates of Etherscan puts the number of holders at the time of writing at 266,378.
This has grown despite the consistent decline in the Annual Percentage Rate (APR) given for holding the token. Data from Dune Analytics shows that Lido’s APR peaked at 8.59% on November 16, 2022 and has since fallen 58%.
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At the time of writing, the interest earned for staking ETH at Lido was 3.62%.
Source: Dune Analytics
On Coinbase this was 3.3%, while on Binance it was 3.89%.
Source: Staking Rewards