Ether (ETH) had been rallying since the beginning of the new year but began tapering off in mid-March. The altcoin has trailed Bitcoin (BTC) since Jan. 1, gaining roughly 48% compared to BTC’s 57% in their respective USD pairs year-to-date.

There are three main reasons why ETH has been underperforming BTC throughout the past several days, including a decrease in network activity and declining sentiment surrounding the approval of spot Ethereum ETFs in May.

ETH trended lower against BTC in the last 30 days

Ether is down 13.5% over the last 30 days, underperforming Bitcoin and other top layer 1 tokens. BTC’s price has dropped only 4% over the last 30 days, while other top-cap layer 1 tokens, such as BNB Chain’s BNB and Solana’s SOL, have rallied 15.5% and 16%, respectively, over the same timeframe.

The ETH/BTC ratio began declining on March 8, reaching its year-to-date low of $0.047 on April 7.

There are several reasons why Ether has underperformed Bitcoin over the last month, including new all-time high prices, over $10 billion in investments into the spot BTC ETF, and Bitcoin Ordinals trading volume surging close to $3 billion. The upcoming Bitcoin supply halving, which has historically preceded a crypto market bull run, has also added to BTC’s tailwinds.

Decreasing on-chain activity underpins Ether’s underperformance

Investigating Ethereum’s network activity, including its scaling solutions, can also give insight on why Ether continues to underperform BTC. Decentralized applications (DApps) are at the core of this layer 1 blockchain, and diminishing use in terms of users and volumes indicates less demand for ETH.

Data from Web3 data aggregator DappRadar shows that the top Ethereum decentralized applications (DApps) have seen an average 6.42% decrease in the number of active addresses over the last 30 days.

Over the past 30 days, Ethereum DApps experienced a 26.51% drop in transaction volume fueled by decreases in Uniswap, MetaMask Swap, Blur and OpenSea.

Additional data from Coinglass reveals a decline in Ethereum’s network activity (in specific metrics) over the last 30 days. Daily active addresses on Ethereum have dropped from 622,963 addresses on March 20 to 499,448 on April 10.

Although Ethereum remains the network to beat in the DeFi sector, Solana has recently captured its market share in this segment in terms of on-chain activity fueled by the memecoin frenzy andstablecoin transfer volume.

Spot Ether ETF may not come in May

Besides weakening on-chain metrics, the decreasing likelihood of an Ethereum exchange-traded fund (ETF) being approved by May is adding to ETH's bearish momentum and lack of strength against Bitcoin.

VanEck CEO Jan van Eck is the latest to voice his skepticism regarding the May approval of spot Ether ETFs by the U.S. Securities and Exchange Commission.

In an April 9 interview with CNBC, van Eck said he believes the multibillion-dollar investment company’s Ethereum ETF application will “probably be rejected.” VanEck and Cathie Wood’s ARK Invest were among the first wealth management firms to file for a spot in Ethereum ETF in the U.S. Both companies are awaiting the SEC’s final decision on their applications, which is scheduled for May 23 and May 24, respectively.

Van Eck explained the regulatory process, highlighting that the SEC typically provides comments on ETF applications and continuously engages with applicants. However, in the case of Ethereum, there has been a notable silence.

“​​The way the legal process goes is that regulators will give you comments on your application and that happened for weeks and weeks before the Bitcoin ETFs, but now pins are dropping as far as Ethereum is concerned.”

Bloomberg ETF analyst Eric Blachunas, who had earlier held 70% odds of an Ethereum ETF approval by May, is also pessimistic, recently reducing the chances to 35%, saying that the lack of communication from the SEC to issuers could be a bad sign for those hoping for Ether ETF approvals by May.

Fellow analyst James Seyffart also expressed concern over the SEC’s inaction, questioning the reasons behind the lack of communication when the applications were anticipated.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.