Home - Ethereum - On-chain Trends Favor Further ETH/BTC Downside: Here is why?

James Carter

March 21, 2023

On-chain Trends Favor Further ETH/BTC Downside: Here is why?

The value of Ether (ETH), the cryptocurrency that fuels the Ethereum blockchain and is second in market cap only to Bitcoin (BTC), has fallen precipitously during the past several weeks.

On-chain Trends Favor Further ETH/BTC Downside

According to TradingView, the last time ETH/BTC was traded on Binance, it was around 0.0625. This is about 15% lower than earlier monthly highs in the 0.0735 area and the lowest level since July 2022.

The drop in ETH/BTC is not because Ether is doing badly. Ether, on the other hand, is up almost 10% this month and over 27% from its monthly lows under $1,400 to where it is now in the $1,750s.

Ether’s problem is that it hasn’t been able to keep up with Bitcoin as most other cryptocurrencies have. Analysts say that people are looking for “safe havens” like Bitcoin as cracks appear in the global banking system. This has led to the rise in the price of Bitcoin in cryptocurrency markets.

Financial Stability Concerns Disproportionately Benefit Bitcoin

This month, three big regional banks in the US went out of business. Over the weekend, Credit Suisse was bought out by UBS, a Swiss competitor. Also, a group of US banks came together last week to give US bank First Republic a $30 billion bailout.

Even though the government is trying to calm things down, investors are still worried that more banks in the US and elsewhere might soon fail. And while this makes people less optimistic about the US stock market, it helps safe-haven assets like gold and appears to help cryptocurrencies like Bitcoin.

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Gold has been the foundation of most societies’ financial systems for thousands of years. When problems arise in the fiat-based, central bank-centered, fractional reserve banking system, many investors like to rush back to gold, which is seen by many as the safest place to put their money.

But Bitcoin, which many people call “digital gold,” is seen as a safe haven more and more. After all, it is a very strong and decentralized payment system that works completely separately from the traditional financial system.

Ether can also say that it is strong, decentralized, and not tied to the old financial system. In fact, because it is smart and can be programmed, it may be better than Bitcoin because it can be used to build an independent, decentralized financial ecosystem right on top of its blockchain (and already is being built).

Ether, on the other hand, is only about half as old as Bitcoin. Many investors trust Bitcoin more because its future doesn’t depend on the work of programmers (like the Ethereum Foundation, who are still working on upgrading the Ethereum blockchain). Bitcoin is likely to stay pretty much the same as it is now, which is to say that it will stay about the same as gold.

Even though the Fed’s rate-hiking cycle might not be over yet (they could raise rates by 25 bps this week), markets are already betting on the rate-cutting cycle, with many people expecting it to start soon because of trouble in the banking sector. If the economy gets better, it could be good for all cryptocurrencies, including Ether, but Bitcoin is likely to keep its lead as a safe-haven investment.

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On-chain trends point to ETH/BTC going down more.

At the same time that investors are turning to Bitcoin more and more as a safe haven, core on-chain activity metrics are going up, which shows that more people want to use the network. On many of the same measures, the Ethereum blockchain doesn’t show the same kind of increase in activity.

Even though this probably won’t stop Ether from continuing to go up (especially if the crypto market as a whole keeps going up), it may make it harder for ETH to keep up with Bitcoin, which could cause the ETH/BTC exchange rate to go down even more.

The first item that should be looked at is the total amount of business that is conducted each day. This measure for the Bitcoin network has just reached its greatest level since the beginning of 2021, as can be seen in the graphs that have been provided below by The Block. But, in terms of the Ethereum network, it is still quite low and is very close to the levels it has seen recently.

The Bitcoin network’s active addresses have slowed in recent weeks, but they’re still near a recent peak. Active Ethereum addresses vary.

Aside from that, the number of first-time interactions between new addresses and the Bitcoin network has also been going up. The same can’t be said for the Ethereum network, where the number of new addresses is still close to its lowest point in years.