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In 2022, Ethereum (CRYPTO:ETH) has been trending downward.
As of this writing, it was down 21% for the year, while Bitcoin (CRYPTO:BTC) was down only 8%. Because cryptocurrencies are highly correlated, it should come as no surprise that ETH and BTC are both declining at the same time. It is, however, unusual for ETH to be down so much more than Bitcoin. Since Ether's inception, the general trend has been to approach Bitcoin's market cap. In general, ETH has outperformed Bitcoin in terms of returns over the latter's lifetime. That is starting to change. In this article, I'll look at some of the possible causes.
The NFT craze is fading.
One possible explanation for ETH's steep price decline this year is that the NFT craze is fading. NFTs are one-of-a-kind tokens purchased with Ether that point to images and other digital assets. NFTs can be thought of as a type of digital art. People buy NFTs in the hope that their value will rise. They may also believe that an NFT gives them "ownership" of the image to which it points. Whatever the case, NFTs were extremely popular last year. Some of them fetched more than $10 million. It was a fairly popular craze. However, it is now fading. If you search 'NFT' on Google Trends, you will notice that the number of search queries for the term has been decreasing since mid-January. NFTs are purchased and sold using ETH, which was previously a factor driving Ether demand. Now that NFTs are losing their luster, fewer people may be purchasing ETH as a result.
In general, the cryptocurrency market is declining.
Another factor influencing Ether's decline is a general decline in the cryptocurrency market. Cryptocurrencies, as previously stated, are highly correlated with one another. In general, when Bitcoin rises, the most popular alt-coins rise as well. The opposite is also true. As Bitcoin and most other major cryptocurrencies have declined this year, it should come as no surprise that ETH has also declined. Its relative underperformance is a little more difficult to explain, but the NFT factor appears to be a factor. ETH outperformed Bitcoin in 2021, when the NFT trend was rising, so it seems logical that the decline in NFT popularity this year is part of ETH's decline.
It's a stupid takeaway.
Ether is the second most valuable cryptocurrency for a reason. It isn't going away, despite having more transactions per second than Bitcoin and a large developer community. This year, however, appears to be a stumbling block for the world's most popular DeFi token. Ether is plummeting as NFTs fall out of favor. It's a difficult time for Ether holders, but there is reason to be optimistic. Later this year, ETH's blockchain will be upgraded, allowing it to handle 100,000 transactions per second. That is a significant improvement, and it may be exactly what is required to make ETH more popular than ever before.
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