Ethereum’s native token, Ether (ETH), rallied 20% between Jan. 8 and Jan. 11 but struggled to sustain the $2,600 level. The subsequent 3.5% correction down to $2,560 on Jan. 16 may have disappointed some bulls, but Ether’s price has outperformed Bitcoin (BTC) by 19.5% since Jan. 8. Such gaps are quite uncommon and last occurred in October 2022.

Ether investors question if the $2,500 level will hold, given that the most obvious drivers are not expected in the short term, namely the Ethereum spot exchange-traded fund (ETF) and the planned Ethereum network upgrades. From a bullish perspective, these events present an opportunity for Ether to further decouple from the remaining cryptocurrency market, but they also present a risk if it either backfires or is postponed.

Ether usually does not outperform Bitcoin by 15%

The price of Ether outperforming Bitcoin by 15% or higher in a week is not something common, at least in the past two years. Besides the high correlation between the two cryptocurrencies, 2023 was marked by disappointment with Ethereum’s declining total value locked (TVL) and persistently high gas fees, paving the way for competing blockchains. Meanwhile, Bitcoin benefited from the anticipation of a spot ETF approval, especially after BlackRock joined the race in June 2023.

In fact, the latest instance happened 14 months ago as Ether’s price rallied from $1,305 to $1,615 in the seven days leading to Oct. 29, 2022. After outperforming Bitcoin by 17%, the gap closed in the following 11 days as ETH crashed below $1,100 on Nov. 9, 2022.

Ether/USD (blue) vs. Bitcoin/USD (orange), October 2022. Source: TradingView

A single past instance should not serve as guidance for prices, especially considering November 2022 marked the downfall of the FTX exchange after reports of customer funds mismanagement and a potential $8 billion shortfall. A counter-example includes the 31 days between July 13, 2022, and Aug. 13, 2022, where Ether’s price outperformed Bitcoin by 63%.

Ether/USD (blue) vs. Bitcoin/USD (orange), August 2022. Source: TradingView

ETH rallied from $1,080 to $1,990 during the 31 days ending Aug. 13, 2022, and despite failing to break above $2,000, the gap relative to Bitcoin’s price persisted in the following month. In essence, a much different type of price action from the short-lived outperformance in October 2022. More importantly, the gap continued even though the cryptocurrency market capitalization faced a correction, which is opposite from what one typically expects given Bitcoin’s dominance.

Ethereum network activity signals strength and higher demand for ETH

To understand whether Ether has what it takes to hold the $2,500 support, one should analyze the Ethereum network activity, including its scaling solutions. Decentralized applications (DApps) are at the core of this smart contract-capable blockchain, thus diminishing use in terms of users and volumes is indicative of less demand for ETH.

Related: Spot Ethereum ETF not coming ‘anytime soon,’ says Mark Yusko

To assess network demand, one needs to analyze metrics related to DApp usage, as some projects including games, decentralized finance (DeFi), and nonfungible token marketplaces are not financially intensive, rendering the total value locked (TVL) metric irrelevant. Over the past 30 days, the top Ethereum decentralized applications (DApps) have seen an average 26% decrease in the number of active addresses.

Blockchains ranked by 30-day DApp volumes. Source: DappRadar

Over the past 30 days, Ethereum DApps experienced a 41% gain in volume fueled by increases in Uniswap, Balancer, ParaSwap, and Aave. Consequently, even if one excludes the activity in Ethereum rollups, the base layer holds a 6 to 1 advantage versus its largest competitor, BNB Chain. That shows how bears’ criticism toward Ethereum high fees is exaggerated in terms of dominance in the DeFi industry.

Besides the strong on-chain activity, Ether’s price could benefit from the “Dencun” hard fork, an upgrade that aims to increase data availability and reduce costs for rollup transactions. The test implementations are expected to initiate on Jan. 17. Furthermore, Bloomberg ETF analysts hold 70% odds of an Ethereum ETF approval by May, reinforcing the bullish momentum and the strength of the $2,500 price support.

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.