Why Ethereum Underperformed Altcoins Today

What happened

Cryptocurrency markets continue to be extremely volatile this week, and right now tokens seems to be going in different directions. Some have spiked today on little more than speculation while others have dropped.

The value of Ethereum (ETH -1.34%) has dropped 4.5% in the last 24 hours as of 1:30 p.m. ET, continuing its post-Merge slide. Smaller cryptocurrencies had a much better day withXRP (XRP 12.77%) up 12.2%, Algorand (ALGO 14.75%) up 12.9%, and Celsius (CEL 5.07%) rising a modest 1.6%.

So what

Ethereum seems to be coming under pressure on multiple fronts. JPMorgan said today that it sees pressure continuing on Ethereum due to a “hard fork” of the blockchain to remain on proof-of-work and the blockchain becoming less decentralized because of a small number of stakers who could control the network.

The SEC charged Ripple Labs, the developer of XRP, with securities fraud in December 2020 and for nearly two years the case has been sitting in court. XRP is rallying after both Ripple and the SEC filed for summary judgments — allowing the court to make a decision based on evidence without going to a formal trial — which could speed up the case. Right now, the expectation is that a resolution could be reached by year end.

Algorand jumped after announcing Michele Quintaglie will be the new chief marketing officer. Quintaglie has experience at Visa, Fidelity, and Raytheon Technologies, so she has significant experience with traditional financial firms. For now, that’s being seen as a sign of maturity for Algorand, which is something the industry is seeking. Algorand is looking to upend financial services businesses with fast transactions and quick finality of blockchain transactions, which could be seen as a reason to adopt it.

Now what

The move for Ethereum seems to be the most concerning. All of the wind came out of the cryptocurrency’s sails after The Merge, and it is now being compared to other blockchains on a performance basis. That’s not good because Ethereum is slower and more expensive than most blockchains and it doesn’t even have decentralization going for it anymore.

On top of that, financial markets in general are in turmoil as the Federal Reserve indicates that it’s going to raise interest rates until inflation is under control. Higher rates means Ethereum stakers, who are only generating yield from their cryptocurrency, have less incentive to keep their tokens staked. That can lead to selling pressure.

As for Algorand and XRP, these moves seem to be speculative at best. I would like to see improved adoption of these cryptocurrencies and expanding ecosystems before jumping in. I certainly don’t think today’s news is a reason to buy either.

Volatility continues to be the one constant in crypto and today is no different.