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Key Takeaways

• Ethereum has traditionally outperformed Bitcoin in bull runs
• The pattern has flipped to start out the 12 months, with Bitcoin dominance rising 
• Our Analyst Dan Ashmore jumps on-chain to look by way of historical past, and present how and why the pattern is changing

The Flippening, huh? Nothing incites debate inside crypto circles fairly prefer it. 

Referring to a state of affairs the place Ethereum flips Bitcoin for the primary spot in the cryptocurrency ranks, the Flippening is something from inevitable to delusional, relying on who you ask. 

I’m undecided I wish to stroll throughout the eggshells of that debate, for concern of my Twitter DMs, however I observed one thing fairly attention-grabbing as we speak when digging into the info on Ethereum vs Bitcoin. 

Ethereum is strongly correlated with Bitcoin

Firstly, the plain. Ethereum is extremely correlated with Bitcoin as a result of, properly, it is a cryptocurrency, and each crypto’s destiny is tied to that of the orange coin. We know this by now. 

The graph beneath reveals how tight this relationship has been since Ethereum went dwell again in 2015. 

But whereas these two greatest buddies comply with one another round throughout the worth charts, there are eventualities the place they diverge a little bit bit. The well-known ETH/BTC ratio is one which Ether followers in explicit hold a eager eye on. 

It peaked in June 2017 at near 0.15 earlier than freefalling all the way down to 0.025 earlier than the tip of the 12 months. Today, it trades at round 0.07. 

Ether is higher at bull markets than Bitcoin

You might have observed that the earlier ETH/BTC chart resembled the form of the crypto market total, by way of its many ups and downs. 

I plotted the worth of Bitcoin towards this ETH/BTC ratio. Indeed, the ratio rises as Bitcoin rises, and falls and Bitcoin falls. Using the Bitcoin value as a proxy for the entire trade, this implies that the ETH/BTC ratio rises in bull markets and falls in bear markets. 

This is smart. Bitcoin is also known as the boomer coin. I fairly prefer it that manner, regardless of it being meant as an insult, by the way in which. But it’s an comprehensible moniker as a result of Bitcoin does transfer like a pensioner throughout bull markets when in comparison with altcoins. 

Ether would be the largest of the altcoins, but it surely nonetheless outperforms Bitcoin when the bulls are out to play. 

On the flip facet, Bitcoin outperforms when the celebration ends. And by outperform, I imply that it tends to drop 60% versus 70%. But hey, that’s for one more day.

Pattern has flipped in 2023

But the worth charts are displaying one thing totally different. One month into the brand new 12 months, Bitcoin has surged whereas the ETH/BTC ratio has fallen – exactly the alternative of what has occurred traditionally. 

I charted the ratio again to the beginning of November, when Sam Bankman-Fried’s fun and games have been revealed to the world and crypto fell, with Bitcoin cratering all the way down to $16,000. 

The chart reveals that the pattern remained as you’ll count on, i.e. the ratio fell as crypto and Bitcoin pulled again. But as we turned the web page into 2023, the crypto market flipped and Bitcoin soared. Only drawback is, ETH didn’t comply with, however somewhat the ratio has fallen, from 0.077 on January eleventh to 0.068 presently, regardless of Bitcoin spiking from $17,400 to shut to $23,000 over the identical interval. 

Why? Honestly, I’m undecided. It’s uncommon. 

Bitcoin is up 36% on the 12 months whereas Ether is solely up 29%. Yet wanting on the returns of different altcoins, maybe it is nothing to do with Ether. Many are being outperformed by Bitcoin, whereas even the outperformers aren’t doing so by as a lot as has been seen beforehand (word I’ve eliminated Solana for scale functions, which is up 125% to this point this 12 months, following being decimated by hyperlinks to Sam Bankman-Fried and a number of tasks fleeing the blockchain on the finish of final 12 months). 

In reality, this has simply been a outstanding rise for Bitcoin from the depths of bear market ache. The remainder of the market is not fairly able to neglect the armageddon that was 2022, with many altcoins paring down over 90%. 

Ethereum wasn’t fairly as dangerous, however nonetheless fell from an all-time excessive of almost $5,000. The free cash and stimulus packages of the pandemic are over. It is a unique local weather now, and it is proving tougher to kick up hype for altcoins. 

The web3 narrative has faltered. NFTs have been crushed. There is little doubt that the narrative round ETH has been torn down. I’ve written about how institutional adoption will pare back in crypto, and the way the sector’s popularity will take a very long time to repair.

That is true for Bitcoin. Perhaps it rings much more true for ETH and altcoins, which have much more to do to regain traders’ belief.