The eth/btc ratio represents the relative strength of ethereum (eth) versus bitcoin (btc). Since the two are the two largest coins by market capitalization and the two largest crypto ecosystems overall, it makes sense to compare their relationship to better understand the market. Monitoring the eth/btc ratio is important as it reflects the market sentiment towards eth relative to btc. A rising ratio shows that eth is outperforming btc, indicating increased confidence in eth or a decline in the price of btc.
While long-term holders may not pay much attention to the ratio, active traders use it to make decisions about their trading positions and take advantage of volatility. Additionally, the ratio provides a measure of the relative strength of eth versus btc, helping us understand changes in market dominance that could lead to volatility.
This week started with a bang for eth/btc as the ratio experienced incredible volatility. The market has been abuzz with speculation regarding the approval of ethereum spot ETFs in the US. This anticipation notably affected the prices of eth and btc, which subsequently affected the relationship.
For most of the last 30 days, the ratio has remained relatively stable, at around 0.0485 around April 24. At that time, both eth and btc only saw moderate price fluctuations without significant divergences that would increase the relationship.
We saw the first notable increase in the ratio around April 27, when it reached 0.0513. This correlated with a small increase in the price of eth, going from $3,140 to $3,250. This increase pushed the ratio up because btc remained relatively stable at that time. This increase continued until the end of April. However, the positive momentum was broken in May when the ratio declined. It fell to 0.0451 on May 16, when it began to recover, rising to 0.0513 on May 20. This slow and steady rise turned into a nearly vertical rise between May 20 and 21, peaking around 0.0560.
While bitcoin also saw significant price action at the time, reaching $71,400 on May 20, eth saw a much more aggressive rise. It rose to over $3,790 on May 21, adjusting slightly to $3,730 on May 22, and peaking at $3,948 on May 23 ahead of any decision on an ethereum ETF.
Such a sharp increase in the ratio is not a surprise, as analysts have revised the approval odds of an eth ETF to 75% amid rumors about the SEC's possible favorable stance. These rumors have been enough to fuel speculation as traders positioned themselves to capitalize on the expected inflows into eth following the ETF's approval.
The potential approval of eth ETFs is an important step towards institutional adoption of ethereum, similar to the impact we have seen with bitcoin ETFs. However, with US regulators struggling for years to decide whether to label eth a commodity or a security, the approval of an eth ETF would have much more significant implications for the broader crypto market. This outlook has fueled the eth rally, as seen in the narrowing of the discount on Grayscale's ethereum Trust and the increase in USDT minting on ethereum in anticipation of the ETF.
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