Ethereum bull market trap? ETH price signal crashes compared to Bitcoin

Recently in Ethereum (Ethereum) The price compared to its biggest competitor Bitcoin (Bitcoin), there seems to be a risk of exhaustion, even if analysts believe that the second largest cryptocurrency is the stronger of the two.

The ETH/BTC exchange rate rose by 40.19% after bottoming out at 0.0553 BTC on May 23. The strong rebound trend reflects the surge in capital flows from the spot ETH to the spot BTC market. This also prompted analysts from Delphi Digital, an independent market research company, to emphasize the “strong strength” of Ethereum in the Bitcoin quotation market. They wrote:

“If you look at the year-to-date ETH/BTC chart alone, you might not have guessed that the fear of the crypto market is the highest level in a year.”

But a careful study of the ETH/BTC chart will reveal evidence that bullish traders may fall into a bull trap.

Bearish wedge

ETH/BTC formed a pattern that expanded from the bottom and contracted as the price went up. As a result, the trading range narrowed. At the same time, with the rise in prices and the evolution of contracting patterns, transaction volume has declined.

As the trading volume declined, the ETH price rose in a bearish reversal mode. Source: TradingView

Classic graphic scientists refer to the structure as Rising wedgeThey interpret it as a traditional bearish reversal pattern, mainly due to the loss of upward momentum in each successive high pattern.

As the asset reaches the level where its two trend lines converge, the rising wedge matures. Nevertheless, there will be no bearish confirmation until the price breaks below the wedge support in a convincing manner. But if it does, the asset may fall to the maximum distance between the upper and lower trend lines of the wedge.

Therefore, the ETH/BTC rising wedge indicator indicates that it fell to 0.0648 BTC when attempting a negative break from the apex of the pattern (the confluence point of the trend line). In addition, the 0.0648 BTC level played a supporting role throughout May.

January 2018 Fractal

Delphi Digital compared ETH/BTC’s response to Bitcoin’s cyclical top in 2018 and 2021 to explain its bullish outlook for the currency pair.

The company emphasized that compared with 2021, ETH/BTC is a relatively weak tool during the price increase in 2017. Although Bitcoin continued to climb and reached $20,000 at the end of the year, the currency pair peaked in the middle of the cycle (June 2017). By then, ETH/BTC had plummeted by more than 85%.

However, the sharp correction of Bitcoin price in January 2018 shifted capital to the altcoin market, resulting in a short-term upward correction in currency pairs supporting BTC. Ether also benefited from the flow of funds in the Bitcoin market. It rebounded from 0.0231 BTC in December 2017 to 0.1237 BTC in January 2018, an increase of 435.44%.

As Bitcoin and Ether both suffered heavy losses in the U.S. dollar market, ETH/BTC began to pull back during the weekly trading hours. The currency pair eventually fell from the year-to-date high of 0.1237 BTC to as low as 0.0246 BTC in December 2018.

However, Delphi Digital pointed out that the ongoing ETH/BTC correction is not the case, he wrote:

“At the top of the beginning of 2018, ETH/BTC suffered heavy losses and did not even recover as quickly as this time.”

According to the outlook of Delphi Digital, the highest comparison of ETH/BTC in 2018 and 2021. Source: TradingView

The correlation between Ethereum and Bitcoin

Whether there will be a negative breakthrough for ETH/BTC seems to depend on Bitcoin’s performance in the US dollar quotation market.

The BTC/USD exchange rate fell 53.77% from its historical high of close to 65,000 USD, and then began to consolidate. At the same time, the ETH/USD exchange rate was also corrected simultaneously with BTC/USD, plummeting 60.59% from the all-time high of 4,384 US dollars. This shows that there is a strong linear correlation between the two digital assets.

Nick Spanos, the founder of the Bitcoin Center in New York, told Cointelegraph that Ether needs to break the correlation with Bitcoin in the dollar-denominated market in order to have an independent ETH/BTC trend. Prior to this, the sharp decline of ETH/USD and BTC/USD also meant the downturn of ETH/BTC. He added:

“Although Ethereum has good fundamentals and ongoing upgrades, its potential future growth depends to some extent on Bitcoin’s performance. Ethereum investors are expected to deviate from this trend. However, the current trend is not It does not indicate the possibility of this in the near to mid-term.”

Yuriy Mazur, head of the data analysis department of the cryptocurrency exchange CEX.IO, added that the continued anti-inflation narrative may allow Bitcoin to resume its upward trend. Therefore, other cryptocurrency markets including Ether should follow suit. He told Cointelegraph:

“ETH/BTC should benefit from the rising trend of cryptocurrencies, especially when Ethereum undergoes a London hard fork upgrade in late July.”