The ETHBTC Battleground
The Ethereum/Bitcoin pairing is shaping up to be one of the best charts to trade the upcoming ETH Merge and to play out any macro thesis a crypto investor would want to deploy.
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Drawing up battle lines
To paint a clear picture of what has been going on, we will look at the ETH/BTC daily chart, following the blow off top in May 2021. Where we are currently trading is exactly at the May 2021 blow off top level which will prove to be the first testing ground for an Ethereum continuation. There was a strong run up in late 2021 where we did see an impulse move above the key 0.08 level but the whole market was overheated at that stage. The 200 day moving average now sits at 0.067 and if we see a downside breakout, that could be the first major retest.
There is also a narrative built that isn’t easily drawn up on a chart but will reflect in the price. It’s the age old decentralisation battle, as Bitcoin will stay steadily in the PoW camp and has a widely distributed node network ensuring validity of transactions and strongly censorship resistant. With Ethereum moving toward PoS and the node network being highly centralised to exchanges such as Coinbase, there are concerns being raised if ETH can be truly censorship resistant.
Founder of Rotkiapp, Lefteris Karapetsas asked a poignant question on Twitter directed to the CEOs and major controllers of these centralised exchanges, “Question for @LidoFinance , @coinbase , @krakenfx , @stakedus , @BitcoinSuisseAG. If regulators ask you to censor at the #ethereum protocol level with your validators will you:
A) Comply and censor at protocol level
B) Shut down the staking service and preserve network integrity
Brian Armstrong, CEO of Coinbase responded with a statement which is assuring in the short term for providing Ethereum the neutrality it needs to survive.
It's a hypothetical we hopefully won't actually face. But if we did we'd go with B i think. Got to focus on the bigger picture. There may be some better option (C) or a legal challenge as well that could help reach a better outcome.
Although detrimental to those chasing yield via centralised exchanges, it would preserve the Ethereum network integrity and put its stake firmly in the censorship resistant, decentralised camp. Watch this space.
Bitcoin dominance
Whilst looking at the ETH/BTC pairing directly, it’s also wise to look at Bitcoin Dominance as a percentage of the total crypto market cap. As it stands now, it is currently hovering just over 40% only 75 bps above this cycle low of 39.15% which shows there is some room for a reflexive move to the upside should altcoins capitulate and a “buy the rumour, sell the news” type of event occurs regarding the ETH merge.
The decoupling has truly arrived
Unfortunately for us crypto investors, the “decoupling” we have been preaching that will occur, separating us from US tech stocks has finally occurred but in an inverse manner to what we were hoping for.
Whilst the NASDAQ has rallied with strength, mainly buoyed by AAPL which is only 4.5% away from its all time high, Bitcoin has struggled to rally with any meaningful conviction and the bounce off the lows is categorically weak, as we have not yet broken the 25k resistance level.
The question that this chart poses is, will Bitcoin play catch up or will the NASDAQ break down when the correlation is turned back on.
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