Ethereum has many fundamental catalysts that could push its value upwards in the short term. Eth2, the strength of the decentralized finance (DeFi) market, and high decentralized exchange (DEX) usage are some positive factors. But, against Bitcoin on the ETH/BTC chart, ETH is showing signs of short-term struggle.
Why ETH Could Stagnate Against Bitcoin, Not Against The Dollar
Some high-net-worth investors in the cryptocurrency market prefer to denominate their holdings in Bitcoin.
As such, these investors measure the performance of their portfolio in BTC terms and not by the U.S. dollar’s value.
The Ethereum price could stagnate against Bitcoin based on the ETH/BTC chart, especially if BTC … [+]
Ethereum remains highly compelling in the medium term because of the abovementioned fundamental factors. But, against BTC, technicals show it is still stagnating under a key short-term trendline.
The demand for Ethereum among whales could begin to accelerate rapidly when ETH breaks out against BTC. It would make ETH a favorable play for high-net-worth investors looking to grow their BTC-denominated portfolio.
However, until the breakout happens on the ETH/BTC pair, there is an argument to be made that the Ethereum price could stagnate against Bitcoin.
The Ethereum price chart against Bitcoin (ETHBTC) with key support levels.
Another variable is the Bitcoin price hovering below $20,000, at around $19,400. If BTC breaks past $20,000, it would enter price discovery.
The term price discovery refers to when an asset surpasses its previous peak and soars to a new ceiling. Since there is no historical data to suggest where BTC might go after $20,000, newfound momentum could emerge.
When Bitcoin sees a large upside price movement, altcoins typically lag behind. Alternative cryptocurrencies perform well when BTC is consolidating and investors are seeking higher-risk plays.
In the short-term, especially if Bitcoin rises above $20,000, this could place some pressure on other major cryptocurrencies.
This Doesn’t Make Ethereum Any Less Optimistic
However, the consolidation of the ETH/BTC pair does not make Ethereum less optimistic in the medium term.
Throughout 2020, the Ethereum ecosystem has seen exponential growth across many areas.
Decentralized exchanges, like Uniswap, overtook top cryptocurrency exchanges such as Coinbase during periods with high volume.
The total value locked across DeFi protocols reached $15 billion and is now comfortably hovering above $14 billion.
Eth2 was approved after more than 400,000 ETH were deposited to the Eth2 deposit contract address. Eth2, short for Ethereum 2.0, is a major network upgrade that significantly scales the Ethereum blockchain.
Prior to Eth2, the Ethereum blockchain was capable of processing less than 20 transactions per second. Post Eth2, Ethereum will be able to process thousands of transactions per second, which would only increase with additional technologies, including Sharding.
Ric Burton, a former Stripe developer and a DeFi engineer, said that the ERC 20 standard, Automated Market Makers (AMMs), and yield farming have unlocked big opportunities for both investors and engineers. All three have seen large growth in 2020, which would make 2021 a crucial year for Ethereum.
“There have been multiple pivotal mechanisms in Ethereum’s ecosystem: The ERC20 Standard; Automated Market Makers; Yield Farming Incentives Each of these unlocked huge new opportunities for engineers and investors There are some people shipping a new one of these in 2021,” said Burton.