While the launch of bitcoin spot ETFs in the US put bitcoin in the spotlight, focusing solely on its price movements provides an oversimplified and superficial representation of the market. It is important to analyze bitcoin in the context of other assets, both crypto and traditional.
bitcoin's relationship with ethereum has always been significant. The interaction between the two largest cryptocurrencies often shows subtle market trends that are not clearly visible in price action.
The eth/btc ratio represents the relationship between the two by showing the value of one ethereum in terms of bitcoin. An increase in the ratio suggests ethereum's growing dominance or bitcoin's comparative weakness, while a decrease points to ethereum's poor performance against bitcoin.
Former cryptoslate The analysis showed that despite the ratio's significant short-term peaks and declines, its overall volatility, as measured by the standard deviation of its historical closing prices, has always been relatively moderate. This means that in the long term, btc and eth often mirror each other's movements and experience parallel market trends. However, that does not mean that short-term volatility in the ratio should be ruled out.
When both are experiencing similar bullish or bearish trends, their relationship remains balanced, further highlighting the importance of short-term discrepancies in their movement.
Since October 2022, eth/btc has been in a recession, likely due to a market correction following the high expectations set by the ethereum.org/en/roadmap/merge#what-is-the-merge”>Bind. It also shows that ethereum's price movements were not as pronounced as bitcoin's, leading to a decline in relative value seen through the ratio.
From cryptoslate reported on the ratio, has experienced a rapid and notable change in trend. Between November 30, 2023 and January 19, 2024, the eth/btc ratio increased by 10.53%. During this period, the price of eth in USD increased by 20.74%, while btc increased by 9.25%. ethereum transaction volume increased by 4.59% and bitcoin grew by 27.23%.
Positive price momentum and increased volume continued into 2024. The new year began with the market eagerly awaiting the approval of spot ETFs in the US, anticipation that caused tension and drove prices higher. The eth/btc ratio decreased significantly between January 1 and January 8, and the rise in bitcoin price caused the ratio to drop by 6.70%.
However, when the approval of ETFs became imminent on January 8, the market began to correct from the tension that accumulated in the price of bitcoin. ethereum price saw a rally and bitcoin saw a notable decline.
Between January 8 and January 19, the price of bitcoin declined by 12.30% as the launch of ETFs failed to provide the rally the market was expecting. At least some of the capital that left bitcoin appears to have moved to ethereum, as eth saw its price rise by 6.30%. This discrepancy in price increases caused a sharp increase in the eth/btc ratio, which grew by 21.25%.
This divergence in price trajectories would suggest an increase in ethereum trading volume, as a jump would typically follow price increases in buying and selling activities on exchanges. However, ethereum transaction volume decreased by 4.15% during the period. On the other hand, bitcoin transaction volume increased by almost 34%.
This suggests that bitcoin's price drop cannot be attributed solely to declining market interest. Institutional moves, likely driven by ETF approvals and the subsequent increase in ETF inflows and trading volume, likely caused the increase in trading volume. At the same time, retail sales drove the price down.
The lack of structured ethereum-based trading products implies that the recent eth surge potentially originated in retail activity. In contrast, the bitcoin market response appears more driven by institutional moves, showing the impact of spot ETFs on both crypto and traditional financial markets.
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