Despite the adoption of a long-awaited spot ETF, the second cryptocurrency continues to lose market share. The ETH dominance index, according to Coinmarketcap, has dropped to a four-year low of 15%, which has not been seen since the beginning of 2021 (the dominance index, or dominance, in cryptocurrencies is the ratio of the market capitalization of an asset to the market capitalization of the entire crypto market. Among the factors that influence for this metric: changes in prices for Bitcoin and altcoins, the increase in the use of stablecoins, market conditions, as well as the emergence of new cryptocurrencies. Most often, this metric is applied to Bitcoin).
Since the start of trading in shares of the first Ethereum-based exchange-traded funds (ETFs) in the United States at the end of July 2024, the price of the second largest cryptocurrency by capitalization has lost (as of August 21) about 27% of the coin’s value of $3.56 thousand. In almost a month of trading , according to Sosovalue, the total capital outflow from ETH funds amounted to more than $440 million, which could create additional pressure on the quotes of the ETH coin. The possible impact of “selling” by funds could only strengthen the already existing downward price trend that formed after the blockchain update in March 2024. The main outflow of capital came from the Grayscale fund. As of August 21, nearly $2.5 billion in assets had been withdrawn from the fund, although the remaining eight funds have seen inflows of more than $2 billion since trading began in late July.
Let us remind you that the Grayscale Bitcoin Trust (GBTC) is a non-public bitcoin fund, it has been traded on secondary markets since 2013 with access only to accredited investors. By the time the process of converting the trust into an ETF began in January 2024, the company was able to accumulate approximately $25 billion in BTC. In the first two weeks of trading in these funds, the price of BTC fell by more than 20%, with a simultaneous outflow of more than $2 billion from the Grayscale fund. The Grayscale Ethereum Trust (ETHE) is a similar product to GBTC that has also evolved into an ETF. By the time regulators approved the fund, it held about $11 billion in ETH coins.
The average cost of sending a transaction on the network of the second largest cryptocurrency by capitalization fell to a five-year low due to low activity on the Ethereum blockchain, which led to an increase in the rate of inflation of ETH coins. In particular, this may be due to the development of so-called second-level (L2) solutions, which are designed to scale the Ethereum blockchain. Layer 2 solutions are one of the core scaling technologies for Ethereum. The essence of the solution is to transfer the transaction load to second-level networks. The principle of operation is to accumulate many transactions into batches and send this mass of transactions for verification to the main ETH network, thereby unloading this network. Also, after an update under the working title London in 2021, the Ethereum blockchain introduced a mechanism for “burning” ETH, which involves the destruction of a small portion of coins in each transaction. The bottom line is that the higher the network fee and transaction frequency, the more ETH is burned. At times of high activity, it may turn out that more ETH is destroyed than new coins are created. This makes the cryptocurrency temporarily deflationary. That is, the cheaper the transaction fees and fewer transactions on the Ethereum blockchain, the fewer coins are burned and the higher the inflation rate of ETH coins becomes.
The inflation rate rose to 0.62% per annum as of Aug. 21, according to Ultra Sound Money, about 10% faster than a week ago and 35% faster than at the end of June 2024. And instead of the deflationary nature of the issue (decrease in the total number of coins) in Ethereum, observed until April 2024, the state of the second cryptocurrency switched to inflationary. Over the past 30 days, the number of coins has increased by 61.2 thousand ETH (almost $160 million at the exchange rate as of August 21). The downward trend in the market share of ETH has continued since June 2023, when the dominance index was at a local peak of 20%. The historical maximum of the indicator was recorded at 31.22% in January 2017. During the same time, from mid-2023, the share of Bitcoin has increased significantly – from 47.5 to 56.2%. As well as the share of the Solana cryptocurrency, which increased from 0.6 to 3.2%.
While the prices of leading cryptocurrencies fluctuate in a narrow range, showing sideways movement, the price of the Tron coin (TRX) increased by 25% in a week, Sun Token (SUN) soared by 95% during the same time. The native cryptocurrencies of the TRON blockchain, unlike Bitcoin (BTC) and Ethereum (ETH), are growing steadily after the collapse of the crypto market on August 5. On August 21, the Tron token updated its maximum in three years: it reached $0.165. The asset was last traded at this level in April 2021. The memcoin ecosystem is also showing strong growth. Over the past 24 hours, Sundog (SUNDOG) has risen in price by 38%, Suncat (SUNCAT) has risen by 50%, and Sunpepe (SUNPEPE) has risen by 11%.
