Ethereum’s on-chain strength and tight supply could let ETH outperform BTC in 2026
Ethereum is showing signs of relative strength versus Bitcoin heading into 2026 as on-chain and market indicators diverge from typical patterns. Key signals: BTC dominance has fallen below 60% after two monthly red candles, while the Altcoin Season Index slipped from 43 to 37. Despite a broad market lull, ETH dominance (ETH.D) rose about 2% and the ETH/BTC ratio gained ~2.08% in early December. On-chain metrics highlight growing commitment: total ETH staked remains above 36 million and exchange reserves have declined by roughly 1.2 million ETH since Q4 began; only ~8.84% of ETH sits on exchanges versus ~14.8% of BTC. Network upgrades (Pectra and Fusaka) coincide with rising weekly transactions (from ~1.55M to ~1.66M MoM), suggesting higher network usage and accumulation. Analysts argue these trends — staking growth, tighter circulating supply, and increasing transactions — create conditions for capital rotation into strong Layer‑1s, positioning ETH to potentially outperform BTC in 2026. Traders should watch ETH/BTC ratio, BTC dominance, staking flows, exchange reserves and on-chain usage metrics for confirmation of a sustained rotation.
Bullish
The article presents multiple converging bullish signals for ETH relative to BTC. Key fundamentals — rising staking totals (>36M ETH), a 1.2M ETH drop in exchange reserves, and lower percentage of coins on exchanges (8.84% vs BTC’s 14.8%) — indicate tightening liquid supply. Network upgrades (Pectra, Fusaka) correlate with higher transactions (1.55M → 1.66M weekly), showing growing usage. Simultaneously, BTC dominance falling below 60% while ETH dominance and ETH/BTC ratios rise suggests capital rotation into ETH and other strong Layer‑1s rather than a classic BTC-led market. Historically, similar on-chain supply squeezes and increased protocol activity (e.g., post-upgrade cycles) have supported sustained rallies or outperformance versus BTC as liquidity tightens and demand rises. Short-term impact: bullish for ETH relative to BTC — expect ETH/BTC strength, higher volatility as traders reposition, and potential price appreciation if flows continue. Long-term impact: if staking and reserve trends persist alongside continued adoption, ETH could sustain outperformance through 2026 as supply remains locked and network fundamentals improve. Risks: a broader market crash, reversal in staking flows, or renewed BTC dominance could negate the bullish thesis — traders should monitor BTC.D, exchange flows, staking changes, and on-chain activity for confirmation.