- ETH/BTC typically surges 1-2 months before altcoin seasons, with an average rise of 153%, signaling broader altcoin rallies.
- Ethereum’s underperformance since the Merge stems from increased L2 activity and deflationary challenges, despite reduced issuance.
- ETH/BTC appears to be forming bullish divergences on a weekly chart, indicating Ethereum could soon begin outperforming Bitcoin.
ETH/BTC could be on the verge of another surge
ETH/BTC is currently in its longest downtrend ever, which kicked off following the introduction of the Merge update in September 2022. However, the weekly chart indicates that bearish momentum could be waning. The Volume Oscillator has been registering higher lows while the price made lower lows, indicating a bullish divergence. This signals that Ether buyers may be gradually stepping in, which could lead to either a trend reversal or a slowdown in the downtrend. The RSI shows a similar picture, reinforcing the idea that Ethereum could soon begin outperforming Bitcoin.
VPVR analysis of ETH/USD shows that the largest volume bars are located below the current price, indicating strong support at lower levels. This suggests that if the price dips, buyers are likely to reenter the market. Meanwhile, smaller volume bars above the price indicate a path of least resistance upward. In contrast, the BTC/USD market’s VPVR offers an opposite distribution, with the largest volume clusters concentrated above the market price.
Additionally, Ethereum’s price is approaching a two-year-long support line, which has historically triggered bullish reversals. Although the RSI failed to sustain above the descending resistance line, its temporary breakout still could be viewed as a bullish sign, as a similar situation preceded Ether’s rally in late 2023 (green circles).
Another sign that Bitcoin could potentially underperform not only Ethereum, but the rest of the crypto market is its dominance developments. Bitcoin’s dominance might be trading within a bearish rising wedge pattern, which suggests that it could potentially move from 58% to 52% of the total crypto market cap. The daily RSI also points to a bearish divergence (blue line), reinforcing this outlook.
On-chain data also indicates that the Ethereum network may be on the cusp of increased activity. For instance, in late September, gas fees on the network surged by nearly 500% over just two weeks, temporarily making Ether deflationary. This wasn’t a short-lived spike like the one on August 5, as elevated gas fees continued into early October. Historically, extended periods of rising gas fees have coincided with positive price movements for Ether.
Source: CryptoQuant
ETH/BTC historically surges ahead of altcoin seasons
A potential surge in the ETH/BTC pair may be more than just a short-term rally, as historical trends suggest that Ethereum typically gains momentum against Bitcoin ahead of broader altcoin seasons. An “altcoin season,” or altseason, can be defined in various ways, but the most common metric is when 75% of the top 50 coins outperform Bitcoin over a 90-day period. Using this criterion, the crypto market has seen seven “major” altseasons in the last seven years, each lasting more than a week. Historically, it has taken one to two months for the market to transition from Bitcoin season to these altcoin seasons.
Source: BlockchainCenter
Within these one to two months ahead of major altseasons (orange rectangles), Ethereum has consistently outperformed Bitcoin, with an average increase of 153%. This means that ETH/BTC could be viewed as an early indicator of further altcoin rallies. Notably, larger surges in ETH/BTC have historically led to more sustained altseasons.
Once the altseason kicks off, Ethereum typically underperforms Bitcoin, leading to a decline in ETH/BTC. Exceptions occurred in the April-July 2017 and March-June 2021 altseasons, where ETH/BTC continued to post new highs, acting as a precursor to further cycle peaks.
The last major altcoin season in January 2024, driven by the U.S. Bitcoin ETFs launch, was lackluster for ETH/BTC, which only saw an 18% gain ahead of the event (cyan rectangle). Most of the gains occurred in the final week, with Ethereum posting double-digit growth, reaching above $2,600 for the first time since May 2022. This jump occurred due to speculation at the time that Ether could soon see its own ETF products.
ETH/BTC’s relatively weak performance suggests that the typical pattern might not have fully played out, or that Ethereum could be losing its status as a driver of altcoin rallies. Supporting this, the altcoin season indicator was rising in mid-July and mid-September this year, while ETH/BTC predominantly remained in a downtrend.
Conclusion
Despite Ethereum’s historical strength ahead of altcoin seasons, its recent underperformance raises questions about its role as a key driver in altcoin rallies. However, it’s too soon to conclude that Ether has lost this “superpower” without further confirmation from upcoming altcoin seasons. With market indicators hinting at a potential trend reversal for ETH/BTC, this confirmation, or rejection, may not be far off. Ether could still be poised for a comeback, potentially reaffirming its status as an altseason beacon.