Ether, the second-largest cryptocurrency by market capitalization, has been rather disappointing in the current market cycle. The crypto that used to follow in Bitcoin’s steps with an even larger amplitude is now lagging. While BTC gained 342% since the lows of January 2023, now correcting -16%, ETH gained “only” 250% and corrected -27% since. Remarkably, during this period, bitcoin hit a new all-time high, while ether’s high $4,090 is still less than the $4,875 it reached in 2021. 
Such underperformance raises questions about both Ethereum’s potential and the current ETH traders’ behavior. Is the web3 narrative fading compared to Bitcoin’s “digital gold”, or is Ethereum losing its position as the main smart contract platform?

Ether Capital Inflows 
A critical aspect of Ethereum's lagging performance can be attributed to its capital inflows. 
Thanks to the approval of spot ETFs in the US, Bitcoin saw a significant new capital influx, notably from institutional investors. This category, known for its conservative behavior, needed the likes of BlackRock to give them the means and motivation to dive into cryptoassets. Riding the ETF hype, speculators have also increased their activity, pushing BTC to new highs. 
None of this happened to Ethereum. As noted by Glassnode in their recent report, while bitcoin's Short-Term-Holders Realized Cap is nearly on par with the last bull run peak, ether’s has barely lifted off the lows. This indicator, measuring the USD wealth held within coins moved in the past six months, suggests a markedly lackluster inflow of new capital to ether. 
However, long-term holding patterns among Ethereum investors suggest an unwavering belief in its value proposition. We continue to see ongoing HODLing behavior, particularly for the coins held for 1 to 3 years. This would suggest that seasoned ETH investors are sitting back and waiting patiently for higher prices… and a possible Ethereum ETF approval.
Ethereum ETF prospects 
After the U.S. Securities and Exchange Commission's (SEC) approved Bitcoin spot ETFs, the industry’s attention shifted to the next regulatory frontier – Ethereum spot ETFs. 
The firms awaiting the SEC’s response on this matter currently include BlackRock, Fidelity, VanEck, Invesco, Galaxy, Hashdex, Ark Invest, 21 Shares, and Grayscale. 
Interestingly, this Tuesday Grayscale withdrew its application for an Ether futures ETF. Filed last September, it was perceived as a “Trojan horse” supposed to pave the way for a spot ETF, and the SEC was expected to weigh on it in just three weeks. The withdrawal was quite unexpected and did not improve the already tepid market sentiment. Indeed, Grayscale’s ETHE shares have been trading at a substantial discount recently — ranging between 21% and 26% since March (data: Ycharts). 
The first SEC decision on Ether spot ETF is expected by May 23rd (deadline for VanEck’s application). However, the chances of approval are not high, especially in light of SEC Chair Gary Gensler’s famous assertion that all cryptocurrencies other than Bitcoin are securities.

Ethereum killers 
Increasing competition in the web3 domain impacts Ethereum too. The so-called "Ethereum killers," such as Solana, are beginning to challenge Ethereum's dominance, while its numerous layer-2 networks are sucking the activity from the main chain. 
Given its lower cost and faster transaction speeds, Solana attracts many projects focused on scalability. With 71 million daily (non-vote) transactions, it beats Ethereum (1 million daily transactions) hands down. Also, with on-chain activity increasing fast, the skepticism about the sustainability of Solana’s low fees model is starting to dissipate. Indeed, Solana’s total daily gas fees are rising steadily and could even challenge Ethereum’s soon (data: Nansen).
Ethereum remains the leader in DeFi (decentralized finance), with $104 billion of total value locked (TVL), or 66% of all TVL. However, Binance Smart Chain with 5.7%, and Solana with 5.5% of TVL cannot be discarded, especially if they continue developing their own DeFi ecosystems.

All in all, Ethereum’s position is visibly weaker than during the previous bull runs. The blockchain must speed up its own scalability improvements without relying too much on layer-2s. So far, the first tests of the sharding technology that would increase Ethereum’s transaction throughput by at least 64, is scheduled for January 2024. However, it is likely to be delayed, as almost all the other Ethereum upgrades have been. In the meantime, ether may still follow the overall crypto market uptrend, with possibly lower amplitude.