With ETH Skyrocketing by 20% in a Single Day, When Will the Altcoin Season Arrive Based on ETH/BTC?

[TL；DR]

Last week, the ETH/BTC ratio hit a three-year low of 0.043, and the market was filled with FUD sentiment of weak ETH innovation and weak prices.

The sustained weakness of ETH/BTC is mainly attributed to the approval of BTC’s spot ETF, the rapid expansion of BTC and SOL ecos, the lack of innovation in the ETH eco, and the current situation of cold trading.

Recently, the Based Rollup, ePBS, Resetting, and various account abstractions of EIP in the ETH eco have become innovative highlights in the brewing process, with Resetting being particularly anticipated.

Introduction

The ETH/BTC ratio reached a new low of 0.043, reaching a three-year low. Amidst the market’s FUD sentiment towards ETH, ETH surged 20% in a single day, setting a record for a three-year increase.

With a rotation of ups and downs, turning to bulls and bears, this article will observe the timing of ETH and even the Altcoin season from the fluctuation of ETH/BTC exchange rates.

ETH/BTC hit a two-year low, and the spillover effect of spot ETF funds is not significant

In the 2023 to 2024 cycle, we can observe a significant widening of the performance difference between BTC and ETH. Specifically, the price trend of ETH appears to be relatively weak, which can be seen as a reflection of the weak overall trend of capital rotation.

Especially compared to past cycles and breakthroughs in ATH (the highest point in history), ETH’s performance can only be described as passive or weak.

ETH/BTC, which has always been considered a benchmark for Altcoin trends, fell to 0.043 last week, reaching a new low since April 2021, with ETH market share dropping to 14.6%. This poor performance reflects that the pursuit of BTC by long-term and short-term participants has significantly exceeded their enthusiasm for ETH, especially short-term investors showing a significant lag in interest in ETH.

Source: Gate.io

A recent report by Glassnode exploring ETH being weaker than BTC also pointed out this situation. Bitcoin saw a significant increase in short-term speculative activity before reaching a historic high (ATH) on March 14 this year. However, Ethereum (ETH) failed to break through its 2021 ATH, unlike US spot ETFs, where a large influx of new capital boosted BTC prices.

Source: glassnode

To this day, ETH has yet to perform better than BTC in the previous two bull markets, and many giant whales betting on ETH reversal have also suffered significant losses. According to on-chain analyst @ai_9684xtpa monitoring, as the ETH/BTC exchange rate hit a new low in nearly three years, the giant whale 0x111…dc42e, which has been continuously bullish on the ETH/BTC exchange rate since March 2023, has accumulated liquidation of $22.45 million.

Overall, the ETH market follows a price trajectory similar to BTC, but most indicators show that ETH performs poorly relative to BTC. Whether the positive progress of ETH spot ETFs on May 21 can strengthen it will be further observed and considered in the following text.

XX flip Ethereum - Analyze the underlying market structural changes

So far, BTC’s overall performance has indeed outperformed ETH, mainly due to the approval of BTC’s spot ETF and the rapid expansion of the BTC eco. Of course, the strong performance of its public chain rival SOL has also impacted ETH.

Therefore, with the overall prosperity and structural changes of the crypto market, the role of ETH/BTC as an Altcoin indicator in the Altcoin sector’s trend is weakening. The SOL public chain, AI sector, MEME sector, and others have shown a relatively resilient or leading trend in this bull market, forming a clear differentiation from the sustained weakness of ETH.

Source: BLOCKCHAINCENTER.NET

Although ETH/BTC’s position as an Altcoin signal is no longer strong, it is still worth exploring whether ETH will continue to weaken.

According to the weekly trend in Figure 1, ETH/BTC has been slowly declining in the downward channel since September 2022. Last week, it briefly fell below the key support level of 0.05. From a daily perspective, the exchange rate has finally rebounded significantly under the support of the downward channel and the positive progress of spot ETFs. The important pressure level in the next stage is 0.06.

If we further magnify the observation cycle, as shown in the figure below, we can see that the ETH/BTC exchange rate showed a strong upward trend during the craziest periods of the two bull markets in the second half of 2017 and the first half of 2021.

Source: Gate.io

If we follow this historical pattern, then the rise of ETH/BTC seems to have not started yet, and it seems too early to be overly bearish on ETH.

From a fundamental perspective, the most significant variable that may affect the trend of ETH shortly is the progress of the US SEC’s approval of its spot ETFs.

Although the impact of spot ETFs in the Hong Kong market is limited, it has pioneered the recognition of ETH by global judicial regulatory regions. On the day of writing, due to the SEC’s requirement for exchanges to accelerate regulatory documents on Ethereum spot ETFs, Bloomberg analysts increased the probability of approval for spot Ethereum ETFs from 25% to 75%, significantly enhancing the prospect of approval for ETH spot ETFs.

Source: CoinDesk

This news has stimulated ETH prices to soar by 18% in a short period, with prominent increases in ETH concept tokens such as Layer 2, Infra, and MEME, sweeping away the recent gloom of continuous decline. During this period, large investors on the chain actively engaged in leveraged trading through lending platforms such as Aave and purchased a large amount of ETH. Of particular note, James Fickel, as a staunch supporter of the ETH/BTC exchange rate, has accumulated over $190 million in WBTC loans from Aave and converted them into ETH. In addition, other large investors have borrowed to purchase stETH and WBTC, further boosting market enthusiasm. These trading behaviors indicate that the market is optimistic about the future development of ETH and willing to make large investments.

To add, the 75% approval rate is only applicable to 19b-4, and approval of the S-1 document is also required. The current prevailing market view is that the SEC may approve 19b-4s this week and then slow down the ution speed of S-1s. Legally speaking, if Ethereum’s ETF is to be successfully launched, the SEC must approve both 19b-4s (exchange rule changes) and S-1s (registration statements) simultaneously.

Which innovations can make ETH rise again?

The activity of the Ethereum community is not plagued by low prices but rather continues to generate many thought-provoking insights and creativity. In addition to the highly anticipated spot ETFs, recent discussions on technological innovation in Based Rollup, ePBS, Resting, and various account abstractions of EIP (Ethereum Improvement Proposal) have been particularly lively. These topics not only reflect the foresight of Ethereum developers but also foreshadow the recovery journey of ETH.

We have written several articles to explore the Resting track, which is also the narrative direction that ETH is most likely to generate a positive flywheel in this bull market. From Lido unlocking liquidity staking to Pendle splitting tokenized equity, as well as Eigenlayer and a group of LRT projects, this type of liquidity staking has developed into more complex and efficient, completely different from simple DeFi Lego blocks.

Ethereum staking is gradually developing towards diversification, and new paradigms are constantly being explored. For example, Layered staking allows investors to choose staking strategies at different risk levels based on their risk preferences; automated staking improves management efficiency through smart contracts; collective staking (or shared staking) provides opportunities for small investors to cooperate and increase value; and the combination of staking and RWA endows physical assets with new liquidity.

Source: Eigenlayer

Although there are currently various staking models in the ETH eco, this is only the beginning. As more users and institutions participate in DeFi, diversified staking models will become a choice for more people, and stakers will maintain network security and obtain returns by providing liquid collateral. This positive economy will help reduce the risk of network manipulation and promote the sustainable construction of the entire eco, which is different from the past pure Ponzi staking returns.

Looking ahead, Ethereum is beginning to demonstrate its unique potential in areas such as Resting, and its current lower valuation provides a solid foundation for its future upward potential. As market sentiment gradually improves, we have noticed that the ETH/BTC exchange rate has shown a strong rebound trend after a brief decline, and some new concept Altcoin sectors are also repairing their value. We suggest investors remain patient and look forward to Ethereum leading the market to new heights with its solid technological foundation and growing community support.