3 Reasons Why Ethereum Price Continues to Underperform Against BTC in 2025

Ethereum (ETH), a cornerstone of the blockchain and cryptocurrency ecosystem, has often found itself in the shadow of its older sibling, Bitcoin (BTC). While both operate within the decentralized digital asset sphere, 2025 has seen a continuation of a trend: Ethereum's price struggles to keep pace with Bitcoin's upward momentum. This divergence raises questions for investors, developers, and anyone interested in the future of crypto. Why, despite Ethereum’s robust technology, diverse applications (from DeFi to NFTs), and the highly anticipated Merge, does it lag behind Bitcoin? Is this a temporary setback, or are there deeper factors at play? This article dives deep into the core reasons behind Ethereum's relative underperformance against Bitcoin in 2025, drawing insights from recent market analyses and reports, particularly a joint publication from CME Group and Glassnode titled ""Digital Assets: Insights and Market Trends"". We'll unpack the challenges, explore potential catalysts for a turnaround, and provide a clearer picture of what the future might hold for ETH in the ever-evolving crypto landscape. We will address the metrics that matter, including recent price surges and tapers, as well as the impending arrival of spot ETH ETFs.

Ethereum price underperforms BTC on a number of metrics as investors await spot ETH ETF to start trading.

Understanding Ethereum's Price Underperformance Against Bitcoin

One of the most striking observations in the crypto market is the persistent gap between Ethereum's and Bitcoin's price performance. While both assets have experienced growth, the rate of that growth has differed significantly. To put it in perspective, ETH has surged approximately 60% over the last 12 months compared to BTC's 87% gain in their respective USD pairs. This 27% difference highlights a clear trend of Ethereum underperforming Bitcoin. So, what are the fundamental drivers behind this disparity? A deep dive reveals a combination of market dynamics, technological factors, and investor sentiment that collectively contribute to the ongoing situation.

What Still Needs to Happen Before Spot Ether ETFs Can Trade

Reason 1: Uncertainty Surrounding the Spot Ethereum ETF Approval and Launch

The anticipation of a spot Ethereum ETF (Exchange Traded Fund) in the United States has been a major talking point in the crypto community. The approval and subsequent launch of such an ETF are expected to bring significant institutional investment into Ethereum, potentially boosting its price. However, the road to approval has been fraught with uncertainty, directly impacting investor sentiment and contributing to ETH's underperformance against BTC.

VanEck and 21Shares file Solana ETF forms, start SEC decision clock

The Impact of Regulatory Hurdles

The process of gaining regulatory approval for a spot Ethereum ETF is complex and time-consuming. The Securities and Exchange Commission (SEC) has historically been cautious when it comes to approving crypto-related investment products. The delays and uncertainties surrounding the approval process create a sense of hesitation among investors. Until there's concrete confirmation and a clear timeline for launch, many investors remain on the sidelines, preventing ETH from reaching its full potential.

What Still Needs to Happen?

The approval of an Ethereum ETF is a significant catalyst that the market has been waiting for. Until then, uncertainty will reign. A successful launch requires regulatory green lights, efficient custodial solutions, and robust market maker participation. The process involves multiple steps, including filing necessary documentation with the SEC, addressing any concerns raised by regulators, and establishing the operational infrastructure for trading and managing the ETF. This multi-faceted approach underscores the complexity and time-sensitive nature of launching a successful spot Ethereum ETF. The delays in this approval process lead to investor frustration.

Investor Sentiment and Market Response

The uncertainty surrounding the spot Ethereum ETF has a tangible impact on investor behavior. Many institutional investors, who are crucial for driving significant price movements, may hold back from making substantial investments in Ethereum until the ETF is approved and available. This hesitancy can suppress demand and limit ETH's price appreciation, especially compared to Bitcoin, which already has a spot ETF and a more established presence in traditional financial markets.

• Institutional Hesitation: Large financial institutions often prefer regulated investment vehicles like ETFs.
• Retail Investor Caution: Even retail investors might be wary of committing heavily to ETH before a spot ETF launch.
• Reduced Trading Volume: Lower trading volume can lead to less price volatility and potentially slower growth.

Reason 2: The Lingering Effects of the Merge and Shifting Narratives

The Merge, Ethereum's transition from a Proof-of-Work (PoW) to a Proof-of-Stake (PoS) consensus mechanism, was a landmark event. While it successfully reduced Ethereum's energy consumption and laid the groundwork for future scalability improvements, it also came with unintended consequences that have contributed to its price underperformance against Bitcoin.

The Promise and Reality of Proof-of-Stake

The shift to PoS was expected to be a major catalyst for Ethereum's growth. By eliminating the need for energy-intensive mining, the Merge significantly reduced Ethereum's environmental footprint and paved the way for increased transaction speeds and lower fees in the future. However, the immediate impact on price was less pronounced than many had anticipated. Some believe the event was overhyped and that the actual tangible improvements are still a work in progress. One of the biggest factors related to the merge is that Ethereum has underperformed against Bitcoin by 44% since the event. This large number causes concern among potential investors.

Narrative Shift and the ""Bitcoin as Digital Gold"" Argument

Following the Merge, the narrative surrounding Bitcoin has strengthened, particularly the ""Bitcoin as digital gold"" argument. Bitcoin's scarcity, its established track record, and its increasing adoption by institutional investors have solidified its position as a store of value. This narrative has resonated with investors seeking a safe haven in the volatile crypto market, leading to increased demand for BTC and a corresponding price increase. The perceived lack of a similarly strong and consistent narrative for Ethereum has contributed to its underperformance.

• Bitcoin's Scarcity: The limited supply of 21 million BTC is a key driver of its value proposition.
• Institutional Adoption: Major companies and financial institutions are increasingly investing in Bitcoin.
• Safe Haven Status: Bitcoin is often seen as a hedge against inflation and economic uncertainty.

Staking Yields and Inflation Concerns

With the transition to Proof-of-Stake, Ethereum holders can now earn staking rewards by locking up their ETH. While this provides an incentive for holding ETH, the staking rewards also introduce a certain level of inflation into the Ethereum ecosystem. The new ETH created is not always offset by deflationary mechanisms such as ETH burning. This increased supply can exert downward pressure on the price, especially when compared to Bitcoin's fixed supply.

• Staking Rewards: Incentivize holding ETH but also increase the circulating supply.
• Inflationary Concerns: The balance between ETH creation and burning is crucial for price stability.
• Comparison to Bitcoin: Bitcoin's fixed supply remains a strong selling point for investors.

Reason 3: Evolving Landscape and the Rise of Competing Layer-1 Blockchains

The blockchain landscape is constantly evolving, with new Layer-1 blockchains emerging to challenge Ethereum's dominance. These competing blockchains offer alternative solutions to scalability, transaction fees, and other issues, attracting developers and users away from Ethereum and impacting its market share and, consequently, its price performance.

The ""Ethereum Killer"" Narrative

Several Layer-1 blockchains, often dubbed ""Ethereum killers,"" have gained traction in recent years. These blockchains, such as Solana, Avalanche, and Cardano, boast faster transaction speeds, lower fees, and innovative features. While none have yet dethroned Ethereum, their growth has undoubtedly chipped away at Ethereum's market share and contributed to the perception that Ethereum is losing ground in the competitive landscape. VanEck and 21Shares have even filed for Solana ETF forms, indicating there is serious institutional investment in altcoins.

Developer and User Migration

The success of competing Layer-1 blockchains depends on attracting developers and users to their ecosystems. Many developers have been drawn to these alternative platforms due to lower development costs, more user-friendly tools, and the promise of greater scalability. As developers build innovative applications and users flock to these platforms, Ethereum's network effect weakens, further contributing to its price underperformance.

• Lower Development Costs: Attract developers seeking cost-effective solutions.
• Scalability Solutions: Address Ethereum's limitations in transaction speed and fees.
• Growing Ecosystems: Competing blockchains are building vibrant communities and applications.

The Ongoing Scalability Debate

Despite the Merge and ongoing efforts to improve scalability, Ethereum still faces challenges in handling high transaction volumes and maintaining low fees. This has led to ongoing debates within the Ethereum community about the best path forward for scaling the network. The uncertainty surrounding the long-term scalability solutions can create doubt among investors and contribute to Ethereum's underperformance against Bitcoin and other blockchains with more readily available scalability solutions.

What Can Spark a Potential Ethereum Recovery?

Despite the challenges, Ethereum remains a vital part of the crypto ecosystem with significant potential for future growth. Several factors could contribute to a potential recovery and a narrowing of the performance gap with Bitcoin.

Spot Ethereum ETF Approval and Launch

As previously mentioned, the approval and launch of a spot Ethereum ETF in the United States would be a major catalyst for Ethereum's price. The influx of institutional investment and increased mainstream adoption could significantly boost demand and drive ETH's price upward.

• Increased Institutional Investment: ETFs provide a convenient and regulated way for institutions to invest in ETH.
• Mainstream Adoption: ETFs make ETH more accessible to a wider range of investors.
• Price Discovery: ETFs can improve price discovery and reduce volatility.

Successful Implementation of Scaling Solutions

Ethereum's developers are actively working on various scaling solutions, including Layer-2 technologies like rollups, sharding, and the continued development of the Ethereum 2.0 roadmap. Successful implementation of these solutions would significantly improve Ethereum's transaction speed and reduce fees, making it more competitive with other blockchains and attracting developers and users back to the Ethereum ecosystem.

Continued Growth of the DeFi and NFT Ecosystems

Ethereum remains the dominant platform for decentralized finance (DeFi) and non-fungible tokens (NFTs). Continued growth in these sectors, driven by innovative applications and increased user adoption, would bolster demand for ETH and contribute to its price appreciation. These innovations showcase the utility of the Ethereum network, attracting more users and investors.

The Future of Ethereum: Navigating the Evolving Crypto Landscape

The crypto market is dynamic and unpredictable, and the future of Ethereum is subject to various factors. While the current underperformance against Bitcoin raises concerns, Ethereum's strong technological foundation, vibrant developer community, and continued innovation provide reasons for optimism. To thrive in this evolving landscape, Ethereum needs to address its scalability challenges, solidify its narrative, and attract institutional investment. This requires active community management, marketing, and further technological achievements.

Key Takeaways for Investors

• Diversify Your Portfolio: Don't put all your eggs in one basket. Diversify your crypto portfolio across different assets and sectors.
• Stay Informed: Keep up-to-date with the latest news, developments, and market trends in the crypto space.
• Do Your Research: Before investing in any cryptocurrency, conduct thorough research to understand its fundamentals, risks, and potential rewards.
• Consider Long-Term Potential: Focus on the long-term potential of Ethereum and its underlying technology, rather than short-term price fluctuations.

Conclusion: Understanding Ethereum's Trajectory in 2025

Ethereum's underperformance against Bitcoin in 2025 is a complex issue stemming from a confluence of factors: the uncertainty surrounding the spot Ethereum ETF approval, the lingering effects of the Merge, and the rise of competing Layer-1 blockchains. While these challenges have undoubtedly impacted ETH's price, Ethereum remains a foundational technology in the crypto world with immense potential. The successful launch of a spot Ethereum ETF, the implementation of effective scaling solutions, and the continued growth of the DeFi and NFT ecosystems could all serve as catalysts for a potential recovery. For investors, a nuanced understanding of these dynamics is crucial for making informed decisions and navigating the ever-evolving cryptocurrency landscape. Ultimately, Ethereum's long-term success depends on its ability to adapt, innovate, and maintain its position as a leading platform for decentralized applications. Monitoring the market closely and staying informed about Ethereum's progress will be crucial for determining its future trajectory in the coming years.