Cryptocurrency News

Ethereum Bull Trap? ETH Price Signals Bitcoin Vs Breakdown


Recent run-up in ether (ETH) prices against its top rival bitcoin (B T c) appears to be at risk of exhaustion, even though analysts believe the second-largest cryptocurrency between the two remains strong.

In retrospect, the ETH/BTC exchange rate increased by 40.19% after bottoming out at 0.0553 BTC on 23 May. The powerful rallying move reflected a spike in capital inflows from the spot ETH to the spot BTC market. It also led analysts at an independent market research firm – Delphi Digital – to highlight the “strong strength” of Ethereum in the bitcoin-quoted markets. He wrote:

“If you look at the YTD ETH/BTC chart separately, you might not be able to guess where the fear in the crypto market is at its highest in over a year.”

But a closer look at the ETH/BTC chart provides evidence that bullish traders can fall into a bull trap.

bearish wedge

ETH/BTC formed a pattern that started widening from the bottom and contracted as the price rose. As a result, the trading range narrowed. Meanwhile, volumes declined as prices rose and contract patterns developed.

ETH price moves inside a bearish reversal pattern as trading volume declines. Source: TradingView

The classic chartist structure is called a . refer as rising wedge. They interpret this as a traditional bearish reversal pattern, mainly due to the loss of upside momentum on each successive higher formation.

Rising wedges mature as the asset reaches the level where its two trend lines meet. Nevertheless, the bearish confirmation does not occur until the price breaks below the wedge support in a solid manner. But if it does, the asset runs the risk of crashing to the maximum distance between the upper and lower trendlines of the wedge.

Therefore, the ETH/BTC rising wedge indicator suggests a downside correction towards 0.0648 BTC on a negative breakout attempt from the top of the pattern – the point at which the trendline converges. Furthermore, the 0.0648 BTC level has acted as a support for the May 2021 session.

january 2018 fractal

Delphi Digital compared the reactions of ETH/BTC to Bitcoin’s cyclical tops in 2018 and 2021 to explain their bullish outlook for the pair.

The firm stressed that ETH/BTC was a comparatively weaker instrument during the 2017 price rally as compared to 2021. The pair topped mid-cycle – in June 2017 – even though bitcoin continued to climb and reached $20,000 by the end of the year. By then, ETH/BTC had fallen over 85%.

But the massive correction in bitcoin price in January 2018 pumped capital into the altcoin market, leading to a short-term upside correction in the BTC-enabled pair. Ether also benefited from money flows from the bitcoin markets, as it rose from 0.0231 BTC in December 2017 to 0.1237 BTC in January 2018 – an increase of 435.44%.

ETH/BTC started to correct lower in the weekly sessions as both Bitcoin and Ethereum took a beating in the dollar-quoted markets. The pair eventually dropped from 0.1237 BTC, then a year-long top, to as low as 0.0246 BTC in December 2018.

But not so with the ongoing ETH/BTC correction, Delphi Digital noted, writing:

“At the top in early 2018, ETH/BTC took a massive hit and didn’t recover as quickly this time around.”

Top Comparison of ETH/BTC 2018 and 2021 according to Delphi Digital’s outlook

Ethereum-Bitcoin Correlation

Whether or not ETH/BTC will undergo a negative breakout depends on how Bitcoin performs in the dollar-quoted markets.

The BTC/USD exchange rate declined by 53.77% from its all-time high near $65,000, and later began a consolidation. Meanwhile, the ETH/USD rate also corrected in line with BTC/USD, falling 60.59% from an all-time high of $4,384. It showed a strong linear relationship between the two digital assets.

Bitcoin Center NYC founder Nick Spanos told Cointelegraph that ether would need to break its association with bitcoin in dollar-denominated markets for an independent ETH/BTC trend to occur. Until then, a sharp decline in ETH/USD and BTC/USD will also mean a depressed ETH/BTC trend. she added:

“While Ethereum has good fundamentals and upgrades in the works, its potential growth in the future is somewhat dependent on the performance of Bitcoin. A breakaway from this trend is being predicted by Ethereum investors. However, the current trend is likely to be expected. No, it’s in the near to medium term.”

Yuri Mazur, head of data analysis at the CEX.IO cryptocurrency exchange, said that the ongoing anti-inflation narrative could allow bitcoin to resume its uptrend. As a result, the rest of the cryptocurrency market, including Ethereum, should follow suit. He told Cointelegraph:

“ETH/BTC should benefit from the cryptocurrency’s rising trend, especially as Ethereum underwent a London hard fork upgrade in July.”