(Bloomberg) -- Ether continues to lag behind leading cryptocurrency Bitcoin as recently-debuted exchange-traded funds fail to kindle greater demand for the second-ranked token.
The spot-Ether ETFs launched in July have suffered eight consecutive days of net outflows totaling nearly $112 million, their longest losing streak so far, according to data compiled by Bloomberg.
Ether is yet to regain ground lost in a sharp selloff earlier in August when an unwinding yen carry trade pummeled crypto markets as well as global equities. Bitcoin has risen about 8% since then, while spot-ETFs for the largest token have drawn inflows.
Ether slumped as much as 4.7% to $2,562 on Tuesday, while Bitcoin dropped as much as at 3.1% to $61,468.
While the Ethereum blockchain retains the lion’s share of decentralized finance activity, its native token Ether “is in search of a new narrative to fuel its continued growth,” Muneeb Khan, executive director of Kraken OTC said in an email. At the same time, “initial enthusiasm for Ether’s deflationary potential appears to have waned,” he added.
Not So Deflationary
While Bitcoin has a fixed cap of 21 million coins, Ether’s supply is not set in stone and the total number of the tokens in circulation has increased for most of this year.
Platforms like Arbitrum and Optimism that help Ethereum scale — also known as Layer-2 chains — are starting to eat into transaction fees on the network, according to Cici Lu McCalman, founder of Venn Link Partners.
Ethereum relies on burning part of the transaction fees it earns to permanently remove tokens from circulation. Losing fees to Layer-2 platforms is therefore contributing to Ether becoming “inflationary rather than deflationary,” Lu said.
The migration of economic activity from Ethereum to a growing set of Layer-2s has led to “some hand-wringing and broader concerns over what Ethereum should focus on developing and what the future of ETH, the asset, looks like,” research firm Messari said in a Monday note.
A shift in industry focus from DeFi projects to so-called memecoins is also partly to blame for Ether’s under-performance relative to Solana, a rival token, Lu added. The Solana blockchain is popular among memecoin issuers.
Federal Reserve Chair Jerome Powell on Friday gave the clearest indication yet that the central bank is on course to cut benchmark rates from a more than two-decade high, portending a more favorable liquidity backdrop for global markets. While this sparked a price uptick in Bitcoin coupled with strong ETF inflows, the same has not played out for Ether.
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