The ETH / BTC exchange rate has risen around 40% after bottoming out at 0.055 BTC. But the pair appears to be heading for a bullish trap.
A recent rise in the prices of Ether (ETH) versus its main rival, Bitcoin (BTC), appears to be in danger of running out, even as analysts view the second-largest cryptocurrency as the stronger of the two.
The ETH / BTC exchange rate has risen up to 40.19% after bottoming out at 0.0553 BTC on May 23. The powerful rebound movement reflected an increase in the flow of capital from the ETH spot market to the BTC spot market. That also prompted analysts at Delphi Digital, an independent market research firm, to highlight the “formidable strength” of Ether in Bitcoin-traded markets. They wrote:
“If you look at the YTD ETH / BTC chart in isolation, you probably wouldn’t guess that fear in the crypto market is the highest in a year.”
But a closer look at the ETH / BTC chart sheds evidence that bullish traders could be heading into a bullish trap.
ETH / BTC formed a pattern that started wide at the bottom and contracted as the price rose. As a result, the trading range was shortened. Meanwhile, volumes declined as prices increased and the trading pattern evolved.
ETH price rises within a bearish reversal pattern as trading volumes decline. Source: TradingView
The classical Chartists refer to the structure as an ascending wedge. They interpret it as a traditional bearish reversal pattern, primarily due to the loss of bullish momentum at each successive high formation.
Rising wedges mature as the asset reaches the level where its two trend lines converge. However, bearish confirmations do not occur until the price breaks below the wedge support in a convincing manner. But if it does, the asset risks collapsing as much as the maximum distance between the upper and lower trend line of the wedge.
Hence, the rising wedge indicator ETH / BTC suggests a decline towards 0.0648 BTC in an attempted negative breakout from the apex of the pattern, the point where trend lines converge. Furthermore, the 0.0648 BTC level served as support throughout the month of May.
Fractal January 2018
Delphi Digital compared ETH / BTC responses to Bitcoin’s cyclical highs in 2018 and 2021 to explain its bullish outlook for the pair.
The firm emphasized that ETH / BTC was a comparatively weaker instrument during the 2017 price rally than it was during 2021. The pair surpassed the middle of the cycle, in June 2017, even as Bitcoin continued to rise and reached $ 20,000 at the end of anus. By then, ETH / BTC had plummeted by more than 85%.
But a massive correction in Bitcoin prices in January 2018 dumped capital into the altcoin markets, prompting a short-term upward correction in BTC-enabled pairs. Ether also benefited from the flow of money from the Bitcoin markets, as it rallied from 0.0231 BTC in December 2017 to 0.1237 BTC in January 2018, an increase of 435.44%.
ETH / BTC then began to correct lower in the weekly sessions, as both Bitcoin and Ether took a beating on dollar-traded markets. The pair eventually fell from 0.1237 BTC, then a year-to-date high, to a low of 0.0246 BTC in December 2018.
But that’s not the case with the ongoing ETH / BTC correction, Delphi Digital noted, writing:
“In early 2018, ETH / BTC took a massive beating and didn’t rebound as fast as it has this time.”
Top ETH / BTC Comparison 2018 and 2021 from Delphi Digital’s Perspective. Source: TradingView
Whether or not ETH / BTC suffers a negative breakout seems to depend on how Bitcoin performs on dollar-traded markets.
The BTC / USD exchange rate declined to 53.77% from its all-time high, near $ 65,000, and began to consolidate later. Meanwhile, the ETH / USD rate also corrected along with BTC / USD, dropping 60.59% from its all-time high of $ 4,384. That shows a strong linear correlation between the two digital assets.
Nick Spanos, founder of Bitcoin Center NYC, told Cointelegraph that Ether would need to break its correlation with Bitcoin in dollar-denominated markets in order to trend independent ETH / BTC. Until then, strong downside moves in ETH / USD and BTC / USD would also spell a depressing ETH / BTC trend. He added:
“While Ethereum has good fundamentals and updates in the works, its potential growth going forward is somewhat dependent on the performance of Bitcoin. Ethereum investors are projecting a breakout from this trend. However, the current trend does not indicate the probability of this happening in the short or medium term. “
Yuriy Mazur, head of the data analysis department at cryptocurrency exchange CEX.IO, added that the ongoing anti-inflation narrative could allow Bitcoin to resume its uptrend. As a result, the rest of the cryptocurrency market, including Ether, should follow suit. He told Cointelegraph:
“ETH / BTC should benefit from an uptrend for cryptocurrencies, especially as Ethereum undergoes the London hard fork update in late July.”