The area around the bullish trendline, which served as an accumulation zone in 2019-20, is once again coming into play. This time, it’s not just a matter of sentiment; there are concrete indicators suggesting downtrend exhaustion.
ETH/BTC Ratio: A Bullish Trendline at Play
Ether’s (ETH) bitcoin (BTC)-denominated market price, the ETH/BTC ratio, is flirting with a bullish trendline drawn from 2016 and 2017 lows. This trendline has consistently restricted the pair’s downside since January, reminiscent of 2019-20 when it served as an accumulation zone. As we can see from the chart below, sourced from TradingView:
Chart: ETH/BTC Ratio (TradingView/CoinDesk)
Back then, this accumulation zone eventually led to a renewed bull market in the first half of 2021. The current trendline has been consistently respected by the market since January, and it’s possible that we’re seeing a similar pattern play out.
Downtrend Exhaustion: A Positive Sign
A widely-tracked momentum indicator, moving average convergence divergence (MACD) histogram, is also suggesting downtrend exhaustion. The MACD histogram has produced shallower bars below the zero line since December 2023, indicating that the downtrend may be weakening.
Chart: ETH/BTC Monthly MACD Histogram (TradingView/CoinDesk)
This could be a positive sign for bulls, as it suggests that the trendline is likely to hold and potentially even serve as a launching point for a renewed upswing in the ETH/BTC ratio.
Options Market: A Slightly More Bullish Sentiment for Bitcoin
However, not all traders are convinced that ether will outperform bitcoin in the coming months. According to Deribit’s options market, ether call options (bullish bets) expiring in six months trade at a 5.5% premium to put options (bearish bets). This is slightly higher than the premium seen in bitcoin options, which could indicate that traders are being extra bullish on BTC.
Quote: "The continued bias for bitcoin stems from concerns that demand for ether spot ETFs will be weaker than for bitcoin ETFs and slow network activity on ETH’s parent blockchain, Ethereum," said Pankaj Balani, CEO and co-founder of Delta Exchange.
However, some market observers believe that the market has already priced in this news. As Balani noted:
Quote: "The market has already priced in this news as ETH/BTC price has been in a downtrending range since announcement in May."
Weak Inflows: A Concern for Ether ETFs
One of the main concerns driving the bias towards bitcoin is that demand for ether spot ETFs may be weaker than expected. This could slow network activity on the Ethereum blockchain and negatively impact the ETH/BTC ratio.
Quote: "The market is expecting lower inflows in ETH ETFs compared to inflows witnessed by BTC ETFs this year," said Balani.
This concern may also be driven by the fact that gas fees on the Ethereum L1 blockchain have been at yearly lows, with activity shifting to layer 2 solutions and other chains like Solana.
Conclusion
While there are concerns about demand for ether spot ETFs, the trendline support and downtrend exhaustion indicators suggest a potential catalyst for growth in the ETH/BTC ratio. However, it’s essential to keep in mind that sophisticated traders may still be cautious about ether’s performance relative to bitcoin in the coming months.
Additional Analysis
- The ETH/BTC ratio has been in a downtrending range since May, and market participants are pricing in lower inflows for ether spot ETFs.
- Traders are being extra bullish on BTC, with slightly higher call premiums seen in bitcoin options.
- The trendline support and downtrend exhaustion indicators suggest a potential catalyst for growth in the ETH/BTC ratio.
Final Thoughts
The area around the bullish trendline has served as an accumulation zone before. With downtrend exhaustion indicators suggesting that the trend may be weakening, it’s possible that we’re seeing a similar pattern play out. However, it’s essential to keep in mind that sophisticated traders are cautious about ether’s performance relative to bitcoin in the coming months.
Recommendation
For investors looking to capitalize on potential growth in the ETH/BTC ratio, a long-term perspective and careful analysis of market conditions may be beneficial. It’s also crucial to monitor news and updates related to ether spot ETFs and network activity on the Ethereum blockchain.
By staying informed and adaptable, investors can make more informed decisions about their investment strategies and potentially benefit from any growth in the ETH/BTC ratio.
