The recent rally in the price of Ether (ETH) against its main competitor, Bitcoin (BTC), seems to be overloading itself, although analysts consider the second largest cryptocurrency to be the stronger of the two.
The ETH / BTC exchange rate rose 40.19% after reaching a low of 0.0553 BTC on 23 May. The strong rebound movement reflected an increase in capital flowing from the spot ETH to the spot BTC market. It also led analysts at Delphi Digital, an independent research firm, to highlight the “enormous power” of ether in the bitcoin offering markets. They wrote:
“If you look at the ETH / BTC chart from the beginning of the year individually, you probably will not guess that the fear in the cryptocurrency market is the highest in a year.”
But a closer look at the ETH / BTC chart reveals evidence that bullish traders may fall into an ox trap.
ETH / BTC formed a broad pattern that started from the bottom and narrowed as the price increased. As a result, the trading area was reduced. Meanwhile, volumes fell due to rising prices and the development of a deflationary model.
ETH price increase in a bearish reversal pattern with lower trading volume. Source: TradingView
Classical cartographers call the structure a rising wedge. They interpret this as a traditional bearish reversal pattern, mainly due to the loss of bullish momentum in each subsequent high formation.
Bullish wedges mature when an asset reaches a level where two trend lines meet. However, bearish confirmations will not appear until the price finally breaks the wedge support level. However, if this happens, the asset risks collapsing the maximum distance between the upper and lower trend lines.
Thus, a bullish ETH / BTC wedge indicates a fall to 0.0648 BTC in an attempt to break through the negative value from the top of the pattern – the point where the trend lines converge. In addition, the 0.0648 BTC level served as support throughout May.
January 2018 fractal
Delphi Digital compared ETH / BTC’s responses to Bitcoin’s periodic highs in 2018 and 2021 to explain the optimistic outlook for the pair.
The company emphasized that the ETH / BTC was a relatively weaker instrument during the price increase in 2017 than in 2021. The pair crossed the middle of the cycle – in June 2017 – although bitcoin continued to rise and reached $ 20,000 by the end of the year. By then, ETH / BTC had fallen more than 85%.
But a massive bitcoin correction in January 2018 destroyed the altcoin markets and triggered a short-term bullish correction in BTC-supporting pairs. Ether also benefited from the inflow of funds from the bitcoin markets, increasing from 0.0231 BTC in December 2017 to 0.1223 BTC in January 2018 – an increase of 435.44%.
ETH / BTC then began to decline in weekly sessions, as Bitcoin and Ether suffered a defeat in dollar-denominated markets. The pair eventually fell from 0.1237 BTC, the then annual high, to 0.0246 BTC in December 2018.
But this is not the case for the ongoing ETH / BTC correction, as Delphi Digital notes and writes:
“Early in 2018, ETH / BTC hit hard and did not even recover as quickly as it did this time.”
The best ETH / BTC comparison for 2018 and 2021 predicted by Delphi Digital. Source: TradingView
Correlation between Ether and Bitcoin
Whether or not a negative ETH / BTC breakout occurs appears to depend on how Bitcoin performs in dollar-denominated markets.
The Bitcoin / dollar exchange rate fell 53.77% from the top, around $ 65,000, and consolidation began later. Meanwhile, ETH / USD also corrected alongside BTC / USD, falling 60.59% from a full-time high of $ 4,384. This shows a strong linear correlation between the two digital sources.
Nick Spanos, founder of Bitcoin Center NYC, told Cointelegraph that ether would need to break its relationship with Bitcoin in the dollar markets in order to gain independent direction from ETH / BTC. Until then, sharp bearish movements in ETH / USD and BTC / USD also imply a bearish trend for ETH / BTC. he added:
“Although Ethereum has good fundamentals and business improvements, its potential future growth depends to some extent on the performance of Bitcoin. Ethereum investors are looking forward to breaking this trend. However, the current trend does not indicate the possibility of this in the short or medium term. ”
Yuri Mazur, head of data analysis at cryptocurrency exchange CEX.IO, added that the ongoing anti-inflationary narrative could allow Bitcoin to resume its upward trend. As a result, the rest of the cryptocurrency markets, including ether, should follow this example. He told the Cointelegraph:
“ETH / BTC should benefit from a bullish cryptocurrency, especially with Ethereum renewing in London with a hard fork at the end of July.”