Ethereum’s 40-Month Downfall Will Not End With Bitcoin’s Dollar ‘Free Fall’
Ether (ETH), a native of the Ethereum network, has fallen roughly 25% against Bitcoin (BTC) since the start of 2024, the lowest levels in 40 months. The outlook for Ether is weak in the coming weeks, especially as the possibility of a Federal Reserve rate cut in September is increasing.
The ETH/BTC and USD correlation is growing.
A key element in Ether's bearish view is the growing positive correlation between the ETH/BTC pair and the US Dollar Index (DXY), which has fallen 5.35% from its 2024 high.
As of August 26, the 30-day average correlation between ETH/BTC and DXY was 0.78, up from 0.10 earlier in the year.
This trend suggests that traders are moving away from Ether, shifting their holdings or prioritizing new investments in favor of Bitcoin, especially when the dollar weakens against a basket of major foreign currencies.
A number of factors have fueled the Ether-to-Bitcoin capital rotation. One is the January 2024 launch of a Bitcoin-focused spot exchange-traded fund (ETF) in the US. Since then, these ETFs have seen $17.86 billion in inflows, according to Farisde Investors data.
Related: Why Is Ethereum Losing Market Share to Bitcoin?
In contrast, the Ether ETF received lukewarm response in late July, resulting in $465 million in withdrawals. The Greyscale Ethereum Trust (ETHE) alone worsened the situation, reporting $2.53 billion in outflows, reducing traders' enthusiasm for Ether compared to Bitcoin.
If recent history is a guide, traders may allocate their capital to Bitcoin in Ether as the dollar weakens following the expected September devaluation.
Dollar breaks below key long-term support.
The US dollar index broke below a multi-month horizontal support level on August 23 following Fed Chairman Jerome Powell's more dovish outlook at the Jackson Hole Symposium.
Independent market analyst Elja Boom pointed to the decline as an indication of further “free fall” for the dollar, citing what appears to be a bearish Gartley pattern. As shown below, this is a harmonic pattern used in technical analysis to identify potential reversal zones in the market.
The boom suggests that the dollar may continue to decline as seen in the pattern.
“This is very good for BTC and crypto,” he added.
ETH/BTC sees a 10% decline in September
A stronger positive correlation with the DXY could send ETH/BTC heading into September, including the formation of a V-top on the short-term charts.
A V-top pattern is characterized by a steep high and an equally sharp decline, forming a V-shape on the chart. In this case, ETH/BTC experienced a rapid upward movement in late July, which was immediately followed by a sharp decline in early August.
The pattern is confirmed when the price breaks below the support level at the bottom of the V, which appears at the level of 0.0427 BTC in this chart.
If ETH/BTC breaks decisively below the support level, it could drop to 0.0396 BTC in September, which is about 10% from the current price level and the lowest level since April 2021. From the top (from the tip to the base) and extending that from the point of failure down.
Conversely, a retracement from the 0.0427 support level could completely negate the bearish setup, instead enabling a rally towards ETH/BTC's 50-4H EMA (red wave) around 0.0469 BTC in September.
This article does not contain investment advice or recommendations. Every investment and business activity involves risk, and readers should do their own research when making a decision.
