The crypto markets have had their own little rally led primarily by ETH, which pulled close to its June and July highs while BTC has remained a few percentage points behind.
There don’t seem to be any specific drivers of the sudden move – perhaps just a short squeeze that caught ETH bears offside, or perhaps participants getting excited about the Merge which is supposedly scheduled for mid-September.
This dynamic can be seen in the ETH / BTC chart which I’ll break down and welcome comments or additions from those of you who get across these types of scenarios.
What is ETH / BTC?
Pairs are basically the relative value between two compared currencies – case and point, ETH/BTC .
To state the obvious, ETH is the ticker for Ether and BTC for Bitcoin … we’re on the same page. If you have looked any exchange platform, be it crypto or forex etc. you’ll see a broad range of tradable pairs.
Another example, take Japanese Yen and U.S. dollar, JPY and USD. On a given exchange platform you’ll see JPY/USD pair available for trade. Pair ETH/BTC or JPY/USD and you get the represented ratio between the two currencies. In ETH/BTC , for example, the current value is equal to 0.058….
This effectively means that 1 ETH is worth 0.058 BTC , or just shy of 6% of the value of BTC and if you want to buy one ETH, you need 0.0058BTC. This relationship stands the same for all pairs.
What the current ETH / BTC chart tells us is that in the past day, ETH’s value relative to BTC’s increased by over 5%. If you were to apply technical analysis to the chart as you might any other tradable product, you could expect a re-test of local resistance of 0.065 – 11% up from where we are now. Were this move to fail, there are also compelling reasons to consider a significant move down to a longer-term trend established in 2016 and re-affirmed in 2019 / 2020. Not only is it critical to consider ‘what if’ scenarios of a failed trade, it’s crucial to maintain bigger picture context of what drives the trade.
While not financial advice (some technical analysis is as inconsistent as mediocre tea-reading when misapplied), it’s interesting to note that these types are observations provide edge for lots of different kinds of trades – particularly, pair traders would be all over a simple trade such as long ETH and short BTC in a scenario like this – as long as the thesis plays out.
Again, there are lots of ways to go about it and there are many more subtle nuances, correlations, and even multi-pair trades that take the subject many layers deeper.
Noted that the chart is formatted in the daily timeframe with a range dating back to January 2017. Further, 50, 200, and 800 exponential moving averages are included, as is relative volume . While not a huge fan of any single indicator or strict use of trend lines , I appreciate where convergence tells a story.
