Ethereum and Bitcoin represent the second and largest cryptocurrencies by market value respectively. The two top currencies tend to move in tandem, with ether gaining a slight edge in terms of performance when crypto markets turn bullish. This has not been the case recently, causing the ETHBTC trading pair to reach a volatile inflection point that could lead to further divergence between the two crypto giants. Here’s a further look at what might happen next.
Ethereum’s history of outperforming Bitcoin may be in jeopardy
The price of ethereum has been relatively benign relative to bitcoin when the crypto market has turned bullish. Since the beginning of 2020, the crypto market has mainly tilted towards ethereum companies. The overperformance of the Ethereum side of the ETH BTC trading pair can be seen in the chart below. The same chart also depicts two converging long-term trendlines, bringing the two cryptocurrencies to an unusual inflection point.
The longer of the two trendlines dates back to the launch of Ethereum. From the bottom of the trendline to the top of the trendline, ETH is up 9000% against BTC. In a stunning twist of fortune, ETH fell 89% against BTC from the top trendline to the bottom.
From the second lower trendline touch to the second higher trendline touch, ETH is up 290% against BTC. Since then, the pair has been consolidating as the two trendlines narrowed further, converging into a top. When highly volatile assets tighten to this degree, the resulting move tends to be explosive.
What’s next for ETH BTC?
The monthly LMACD (pictured above) shows momentum favoring further losses for ETH against BTC, suggesting a trendline break below. Ether’s continued weakness against BTC makes sense on a cyclical basis, although Bitcoin appears poised to rally again against the U.S. dollar, with Ether tending to outperform in the interim.
Despite limited data, a cyclical trough in bitcoin may be forming for the pair. According to the Hurst cycle theory, cycle troughs are usually formed after the “effective trend line” is broken. When split into individual corrections, each ETHBTC cycle appears to have its own valid trendline. Each ETHBTC cycle has formed a head-and-shoulders-like reversal pattern, with the second cycle lacking a breakout from the neckline.
The first cycle ends when the weekly LMACD breaks below the zero line at the trendline, which could be brewing for the ETHBTC trading pair. The last crash saw ethereum drop nearly 68% against bitcoin.
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The last ETHBTC crash represented a worsening of the crypto bear market. While the market bottomed out in late 2018, Bitcoin continued to outperform ETH on a ratio basis until September 2019. BTC is bullish for a long time until Ether can refuel and resume outperforming. Given the time involved in converging the trendline, a breakout or breakdown would be powerful, potentially kickstarting a new trend in the coming months.
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