HACKER Q&A
📣 fdeage

Why is ETH/BTC ratio declining despite Ethereum's greater utility?


Bitcoin burns ~170 terawatt-hours (~$10-15B $) annually just to maintain its network, and this consumption can't decrease by design. In contrast, Ethereum offers similar functionality as a decentralized payment system, and also added features like smart contracts, but with a much lower energy consumption since its transition to proof-of-stake in 2021.

Given Ethereum's broader utility and tiny electricity consumption, one might expect it to outpace Bitcoin in value in the long run. However, the ETH/BTC ratio has dropped from 0.082 in August 2022 to 0.034 today. Why isn't Ethereum’s value keeping up with Bitcoin? What underlying factors might be driving this decline?


  👤 ArtTimeInvestor Accepted Answer ✓
1: Fixed supply

Eth supply is unknown, while BTC supply is capped at 21 Million. Having a capped supply is a core value in the Bitcoin story. In the ETH story, it is not. ETH supply is changing every couple of years in unpredictable ways.

2: Better decentralization

Proof of work means that every person/company/country can start acquiring Bitcoin without permission of the owners that already hold Bitcoin. As everyone can start mining Bitcoin. With proof of stake as it is used by Ethereum, a new investor needs to acquire ETH from the current holders.

POW also drives mining to many different places, as it goes to where there are still underutilized sources of power.


👤 Griminve
Bitcoin might have greater utility to some payment processors (eg: Bitcart) than Ethereum.

Sources: 1. https://github.com/bitcart/bitcart/issues/439 2. https://t.me/bitcart/20791


👤 parkaboy
For better or for worse, people (the masses) adopt technologies based on actual usefulness, the product experience, and trust. Most people's actions tend to disregard social/environmental impacts of a technology. This is why airtravel is popular even though it's terrible in terms of CO2 efficiency. This is why people use Amazon and Walmart while driving out small family businesses.

If you look back over the last decade, pretty much all uses that have been invented on top of blockchain technology have been overhyped in terms of actually widespread REAL world utility. Ideas like NFTs, DAOs, Smart Contracts, etc. are cool technological solutions to a number of problems, but they are not THE ONLY solutions to the problems that they solve. I.e. the problems they solve don't necessarily need a blockchain or real decentralization, and blockchains still make for a rather clunky and confusing user experience.

Contrast this with the solution of a truly decentralized way of electronically transferring funds instantly(ish) and without regards to intermediaries, laws, or borders. THIS solution exclusively solves a number of very real world problems that other solutions just can't (Traditional banks, CCs, PayPal, e-Gold, Liberty Reserve, etc.). Having a centralized system mediating financial transfers can create lots of problems in certain situations. (In other situations of course, centralized financial systems are nice).

In this regard: Bitcoin does a perfectly good job, is the most established, and has the most robust decentralization. It's fixed supply, whether or not overrated in actuality, certainly helps psychologically drive adoption, which creates a feedback loop (more adoption -> more trust). It's founding story also adds the the long-term trust as well. Being the first of its kind and totally out of left-field, there are none of these shenanigans with the currency being developed by VC-backed companies or founders pre-mining a ton that may be in conflict with the public interest.

While Bitcoin may not be "the best" or "sexiest" in certain technological factors (e.g. energy consumption, smart contract capabilities, etc.) compared to other blockchain technologies, it does a job and it does it well. I would be careful to not conflate how advanced a competing technology is with its actual value.


👤 storm343
Because the market price isn't based on utility anymore..