Ethereum, the second-largest cryptocurrency by market capitalization, has been losing ground against Bitcoin since August 2020. The ETH/BTC pair has been in a downward trend, indicating that Bitcoin has been a better investment choice over this period. However, a historical comparison suggests that Ethereum could be on the verge of entering a consolidation phase, which could offer a good opportunity to buy ETH with BTC.
Ethereum Price Action
Ethereum is currently trading at around $1,600, which is 22% lower than its price in August 2020. Bitcoin, on the other hand, is 8% higher than its price in the same month. This shows that Ethereum has underperformed Bitcoin in the past year.
This is a common phenomenon that occurs during bear markets. Coins with larger market capitalizations tend to be more resilient against price declines as investors become more risk-averse and look to preserve their capital. While Ethereum is not small at a market capitalization of $187 billion, it is still considerably lower than Bitcoin at $525 billion.
During bull markets, coins with lower market capitalizations tend to outperform Bitcoin again as investors seek assets with higher potential returns.
Ethereum Price Compared Against Bitcoin
When comparing ETH’s value to BTC, it is evident that Ethereum has been trading within a descending channel since August 2020. This pattern, characterized by its lower highs and lower lows, often indicates a bearish trend in the market.
Three other distinct phases:
- Accumulation phase: During this phase, price tends to stabilize, hinting at an upcoming change in momentum
- Ascending channel: Here, the price experiences a significant reversal, often on a parabolic trajectory, characterized by highs and higher lows.
- Distribution phase: In the final phase, the price ceases its upward movement. Investors typically use this phase to capitalize on their gains and liquidate their positions.
The accumulation phase is typically the best time for investors to convert their Bitcoin into Ethereum. This phase is marked by price holding on at the bottom and then showing signs of reversal. Ethereum is still forming lower lows against Bitcoin, so it has not entered the accumulation phase yet. However, the last cycle shows that this could be changing soon.
Reflecting on the last cycle, Ethereum was in a descending channel against Bitcoin for 17 months. The accumulation phase then occurred from September 2019 up until February 2020. Based on the four-year theory, which suggests similar phases in the market occur every four years, this shows that the accumulation phase should also be approaching very soon in this cycle.
Yet, while the last cycle offers valuable insights, it is important to note that no two cycles are exactly the same. In the current cycle, ETH’s price action has not seen as much of a drop as in the previous cycle, which could be attributed to changing fundamentals and asset maturation.
While an accumulation phase for Ethereum has not been confirmed yet, there remains the potential for its price to drop even further relative to Bitcoin. However, if the previous cycle is anything to go by, we may be entering the consolidation phase soon. This phase typically presents prime buying opportunities for Ethereum.