Original author: Murphy, on-chain data analyst

Editor's note: Since the new round of bull market cycle, Ethereum's price has been performing poorly. Recently, due to the frequent sale of coins by the Ethereum Foundation, Ethereum has been pushed to the forefront again and again, and the community is full of FUD voices. On-chain data analyst Murphy conducted a rigorous and in-depth analysis of Ethereum's on-chain data on X. He answered the three most concerned questions of community users: "Why did ETH perform so poorly in this round, is there still hope for ETH, and under what circumstances can ETH catch up?" BlockBeats reprinted the full text as follows:

Detailed explanation of ETH on-chain data, it's here you want! (Long tweet)

-Why did ETH perform so poorly in this round?
-Is there still hope for ETH?

-Under what circumstances can ETH catch up?

In response to the issues that my friends are concerned about, I tried to make some comparisons and analyses from the perspective of on-chain data, hoping to provide some reference for my friends. I will use the following 5 chapters to analyze and explain. If you can read it patiently, I believe you will gain something.

(1/5)

Maybe because ETH has performed so well in recent times, more and more friends have left me messages, asking me to analyze some of ETH's on-chain data, including this lecture in Shenzhen. After class, the most questions my friends asked me were #ETH.

Alas... ETH is so worthy of so many friends. When asked how ETH can get out of its decadence, I usually answer jokingly: "Unless V God follows Satoshi Nakamoto and the Ethereum Foundation is dissolved"... Of course, jokes are jokes. To analyze the reasons in detail, we still have to start with effective data.

I believe that you have also seen many bloggers analyze the narrative ability, ecological construction, technical competition and other aspects of this round of #ETH, so I will not repeat them here. In fact, whether the price is good or not, it all comes down to whether "money" is good or not. As long as it can get the attention and pursuit of funds, there is nothing that a big positive line can't solve.

Therefore, how to judge whether ETH is paid attention to by funds is particularly important. I have 2 measurement criteria, one is "the proportion of ETH traffic on the exchange", and the other is "comprehensive activity on the chain";

The so-called exchange flow refers to the sum of daily transfers in and out of the exchange. The transfer in can be regarded as supply, and the transfer out as potential demand; When the "flow" is getting higher and higher, it at least shows that ETH is beginning to be paid attention to by more funds!

In particular, we can use #BTC as a reference. After all, the status of the big cake is irreplaceable. By observing the flow ratio of ETH relative to BTC, we can clearly see the change in fund preferences.

Figure 1 below is the flow data of BTC & ETH on the exchange. In order to facilitate the subsequent explanation, we must first understand some key elements in the figure:

1. The gray and light green curves in the figure represent the prices of BTC and ETH respectively;
2. The red wavy line represents the inflow and flow of BTC in the exchange; the blue wavy line represents the flow of ETH in the exchange;
3. The upper part of the middle zero axis represents the inflow, and the lower part of the zero axis represents the outflow.

（Figure 1）

First, let’s look at the flow performance of ETH in the last cycle:

From January to April 2021, #BTC led the rise, and almost all the funds in the market focused on BTC; for example, on February 9, the day I captured (see mark 1 in Figure 1), BTC had an inflow of US$2.9 billion and an outflow of US$2.5 billion; ETH had an inflow of US$1.14 billion and an outflow of US$1.19 billion; at this time, ETH’s exchange flow was roughly about 30% of BTC.

(Figure 2)

Between April and May 2021, BTC began to pull back, while ETH began to catch up. We see that the essence behind this is the change in capital preference. For example, on April 27, which I captured (see mark 1 in Figure 2), BTC had an inflow of $2.8 billion and an outflow of $2.7 billion; while ETH had an inflow of $1.6 billion and an outflow of $1.5 billion; in terms of flow share, it reached 50% of BTC.

Please note the causal relationship here. It is not because BTC has pulled back that ETH will definitely rise; It is the push of funds that makes ETH perform strongly at this time. The increase in the proportion of traffic can precisely illustrate the spillover effect of funds (see mark 2 in Figure 2), and more and more people are beginning to focus on ETH. Therefore, ETH also reached its historical high of $4,172 for the first time one month after BTC reached its high price.

(Figure 3)

After May 21, due to the occurrence of the 5.19 black swan event, panic sentiment brought down the overall market, and the exchange traffic of BTC and ETH began to shrink at the same time, and the currency price also fell synchronously. At this point, we can find that even with the overall reduction, ETH's share of traffic in the exchange has increased instead of decreased, and it can almost maintain the same scale as BTC, rising from 50% to 100%! (See mark 1 in Figure 3) This shows that at this time, market funds did not flow back to BTC due to panic, but were more firmly optimistic about ETH. This is also the fundamental reason why ETH can even go higher and more stable than BTC in the second top range of the last bull market. (2/5) I can sort it out. When #BTC started in the last cycle, #ETH traffic accounted for 30%; when it peaked and fell for the first time, ETH traffic accounted for 50%; when it peaked for the second time, it had reached 100%.
Let’s look at the flow performance of ETH in this round:

From October 2023 to March 2024 is the leading period of BTC in this cycle. Due to the expected speculation of BlackRock’s application for spot ETF, on-site funds are also more focused on BTC;

(Figure 4)

From the day of February 2 that I captured (see mark 1 in Figure 4), BTC had an inflow of US$3 billion and an outflow of US$2.8 billion; while ETH had an inflow of only US$440 million and an outflow of US$510 million; At this time, ETH’s exchange flow is roughly only about 15% of BTC, which is pitifully small.

In March, the price of BTC broke through the historical high of $73,000. Although #ETH also rose synchronously at this time, the exchange traffic of ETH did not improve significantly compared with that of #BTC. As I took a screenshot on March 13 (see the mark 2 in Figure 4), BTC had an inflow of 5.4 billion and an outflow of 4.9 billion; ETH had an inflow of 1.4 billion and an outflow of 1.3 billion; Even when the market was the most fomo, the exchange traffic of ETH was only about 25% of that of BTC.

Compared with the previous cycle on April 27, 2021 (see Figure 2 in 1/5), the price of ETH was also around $2,600 (similar to now), but at that time, the traffic share of ETH had reached 50% of BTC, and then there was the historical high of $4,172.

It is obvious that after BTC broke through the historical high in this cycle, funds did not overflow from BTC to ETH like in the previous cycle.

(Figure 5)

Even around the time when the ETH spot ETF was approved in July (as shown in Figure 5 above), the ETH exchange flow was only about 34% of #BTC, which was completely different from the reasonable level of 50% in the previous cycle, not to mention that in the second peak area, #ETH flow even reached 100% of BTC (see Figure 3 in 1/5).

It was also because of seeing this data that I made up my mind to exchange my ETH for BTC on the day when the ETH spot ETF was approved.

(Figure 6)

On October 19, when BTC rebounded to $68,000, BTC had an inflow of 2 billion and an outflow of 2.3 billion; ETH had an inflow of 700 million and an outflow of 650 million; ETH's exchange flow has also remained at around 35% of BTC (see mark 1 in Figure 6).

The data of 700 million inflow and 650 million outflow is almost equivalent to the scale at the beginning of the bull market in November 2023 (see mark 2 in Figure 6). It can be seen that from the beginning of this cycle to now, the attention of funds to #ETH has always been lukewarm. It is not that there is no attention, but it is much worse than the previous round. Even if there is an epic benefit of spot ETF passing this, it cannot arouse greater interest of funds. Why is this?

（3/5）

We all know that in 2021, #ETH's consensus mechanism switched from PoW (Proof of Work) to PoS (Proof of Stake), a process called "Ethereum Merge", which includes 2 important stages (as shown in Figure 7):

（Figure 7）

1. On August 5, 2021, the London upgrade mainly introduced the EIP-1559 proposal, changed the transaction fee structure, and reduced the inflation of #ETH supply in preparation for the merger.

2. On September 15, 2022, the ETH mainnet completed the transition from PoW to PoS, and since then, the generation of blocks has been the responsibility of validators rather than miners.

There are different opinions on whether the transition from PoW to PoS is good or bad. For example, Ni Da @Phyrex_Ni also expressed his support for the transition to PoS yesterday, believing that it would be an unwise choice for ETH to continue to stay on the PoW track and compete with BTC for power. The specific link is as follows: https://x.com/Phyrex_Ni/status/1849835682526908566

Brother Jason @jason_chen wrote a very wonderful article on October 24. He analyzed the "internal and external factors" of Ethereum's current deadlock by citing the business cases of Alibaba and Pinduoduo. The specific link is as follows: https://x.com/jason_chen998/status/1849274360483467583

But no matter how we discuss "good and bad", the funds seem to have voted with their feet.

（Figure 8）

As shown in Figure 8, starting from July 2022, the gap between the proportion of ETH exchange traffic and BTC began to gradually widen, and this situation has continued to the present. This shows that from this period, funds began to gradually withdraw from ETH. Coincidentally, this start time is just before the Ethereum mainnet completes the PoW to PoS conversion.

It should not be ETFs that make funds prefer BTC. After all, #ETH's ETF was passed shortly after #BTC's ETF was passed. But is it caused by the PoW to PoS conversion? I'm not sure.

But in any case, at least one thing is certain, that is, if Ethereum continues to maintain the status quo (including internal and external), then even with the support of ETFs, it will be difficult to obtain more than 50% or more of BTC's exchange traffic. Because after this round of fomo sentiment in March this year, the market has already rehearsed it.

(4/5)

After looking at the exchange traffic data, let's take a look at the on-chain activity data of #ETH. I define the integration of 3 dimensions of data as on-chain activity, including:

1. Number of active addresses (yellow waveform in the figure)
2. Number of transfers (blue line in the figure)
3. Transaction amount, in US dollars (red line in the figure)

(Figure 9)

From Figure 9, we can clearly see that the strong #ETH price in 2017-2018 and 20-21 is behind the surge in the number of active addresses, while the number of transactions initiated and the amount of transfers converted into US dollars are rising simultaneously. In January 2018 and May 2021, the amount of ETH on-chain transfers reached a record high of US$18 billion and US$15.5 billion, respectively.

In this cycle, the number of active addresses of #ETH has been declining since March. Although the number of transactions in March was close to the high point in 21 years, the transfer amount was only 6.7 billion US dollars, indicating that compared with the previous round of on-chain transactions, ETH has also lost the participation of "big funds". Its volume is not even half of the high point in 21 years. The number of transactions is close, but the scale of funds is relatively small.

(5/5) Under what circumstances can ETH catch up?

The data I listed above are all objective facts, but it does not mean that I am completely pessimistic about ETH subjectively, but I personally think that at least now is not a good time to intervene in #ETH.

Whether ETH can catch up after BTC is launched, we only need to look at the degree of capital preference, and at the same time, with the comprehensive activity data on the chain to verify it, we can basically judge it.

When is the right time to intervene? My principles are:

1. ETH’s exchange traffic accounts for 50% or more of BTC (currently 35%)

2. Maybe after 50%, the price of ETH has gone up, but it will definitely not be the highest. For me, I need to confirm the trend first, then execute the strategy.

3. The number of active addresses on the chain reflects the prosperity of the ETH ecosystem to a certain extent, and it is necessary to take a continuous upward trend;

4. The number of transfers and transaction amounts should be increased simultaneously, especially the transaction amount, which is an important basis for measuring whether there is large capital participation.

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