On October 25, 2024, the exchange rate of Ethereum against Bitcoin (ETH/BTC) plummeted to 0.0365, marking a 42-month low. Amidst a confluence of factors, Ethereum is struggling to maintain its position as the "king of the chain," facing fierce competition, a delicate macro environment, and the weak market performance of ETH/BTC. Investors are filled with doubts about the future trajectory of Ethereum. In this article, we will conduct an in-depth analysis from the perspectives of market sentiment, historical performance, technical trends, and drivers of recovery, and by revisiting historical data and market behavior, we will explore the future potential and long-term investment value of ETH/BTC.
Market Sentiment: How has investor interest in Ethereum cooled down?
The weakness of ETH/BTC has multiple triggers, with the shift in market sentiment being particularly crucial. The launch of Ethereum ETFs did not meet market expectations, competitors in the Layer-1 platform space are becoming increasingly formidable, and Layer-2 networks have diverted some of the revenue from the Ethereum mainnet, causing investors' attention to gradually shift away from ETH.
The "low-key" debut of Ethereum ETFs exacerbates the disparity in expectations and deepens the sentiment slump
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Compared to the high-profile launch of Bitcoin ETFs, the performance of Ethereum ETFs has been lukewarm, with a muted market response and capital inflows far below expectations. This event reveals a weakening of investor confidence in the Ethereum market. According to Coinglass data, since the launch of Ethereum ETFs in July, there has been a total outflow of nearly 1 million ETH.
Compared to Bitcoin, Ethereum has higher volatility, complex technical upgrades, and unclear market regulatory directions, resulting in a relatively limited driving force for ETFs on its price. The unfulfilled expectations of ETFs have directly impacted market sentiment, bringing short-term pressure to the ETH/BTC exchange rate.
Fierce competition in the Layer-1 ecosystem, with the strong rise of Solana and others
As the first generation of smart contract platforms, Ethereum has developed a vast network effect over the long term, but with the rise of other Layer-1 blockchains, this position is facing increasing threats.
The rise of blockchain ecosystems like Solana and Sui is gradually eroding Ethereum's market share in the fields of smart contracts and decentralized applications. Taking Solana as an example, it has quickly attracted applications such as MEME and DeFi with its low transaction fees, high TPS (transactions per second), and improved development experience. On October 21, the decentralized exchange Raydium based on Solana outperformed the Ethereum network in terms of 24-hour revenue. Raydium's fee revenue for the day was $3.4 million, while Ethereum's fee revenue was $3.35 million. Platforms like Sui are also accelerating their iterations, gradually diverting some development resources and users. Under competitive pressure, the activity level of ETH on the chain has decreased, and the reduction in demand directly leads to pressure on the ETH/BTC exchange rate.The Diversion Effect of Layer-2 Scaling Solutions
Layer-2 scaling has enhanced Ethereum's transaction efficiency and fee management, but it has also diverted revenue from the mainnet, with daily transaction fees dropping from $30 million in 2021 to the current range of $1 million to $5 million. This trend indicates that while Layer-2 has greatly improved Ethereum's scalability, the loss of mainnet revenue in the short term has put pressure on ETH prices.
According to CoinGecko data, the current total market capitalization of Ethereum Layer2 is $19.1 billion, while the total market capitalization of Ethereum is $304.7 billion. If we compare this to the same market capitalization of Ethereum in the last bull market, its reasonable price should be in the range of $3,000 to $3,100, which implies that Ethereum has inflated significantly over the past three years.
Historical Performance Review: Ethereum's Multiple "Bottom Bounces" Behind
ETH/BTC has touched bottom multiple times but has successfully rebounded with technological upgrades and changes in the market environment. By reviewing Ethereum's historical performance, it can be observed that its bottom reversals are often accompanied by technological upgrades, ecosystem prosperity, and market environment improvements.
Bottom Bounce in the 2018-2019 Bear Market: The Rise of DeFi
The period from 2018 to 2019 was a major bear market for cryptocurrencies, and the performance of ETH/BTC was particularly low. During this phase, Ethereum's exchange rate fell to a historical low of 0.016 in October 2019, and the market demand for ETH plummeted. However, by mid-2020, Ethereum's market performance gradually recovered, and this rebound was inseparable from the rapid development of the DeFi ecosystem.
DeFi Market Explosion: In mid-2020, Ethereum's developers and users focused on decentralized finance (DeFi). DeFi platforms such as Compound and Uniswap gradually took shape, offering innovative services based on Ethereum, such as lending and liquidity mining. The rise of these services propelled a surge in Ethereum's transaction volume, allowing it to gradually recover from the bear market trough.Increased Demand for ETH: The development of DeFi has brought a surge in demand for ETH, particularly for locking and staking needs (such as collateralized lending), which has driven up the locked amount of ETH and indirectly increased the demand ratio of ETH/BTC. By 2020, the DeFi ecosystem gradually expanded, with Ethereum becoming the main supporting chain for DeFi protocols, and its market value subsequently recovered, with the ETH/BTC exchange rate gradually rebounding from the bear market.
The bottoming out and rebounding in this phase indicate that Ethereum's application ecosystem has strong market appeal, especially in innovative areas beyond traditional finance. The rise of DeFi has provided long-term value support for Ethereum.
Ethereum 2.0 Upgrade in 2022: The Transition to Proof of Stake (PoS)
The ETH/BTC exchange rate experienced several significant fluctuations in 2022, mainly due to the market panic selling caused by the Luna incident and the market rebound brought about by expectations and implementation of Ethereum 2.0 (Merge upgrade). These two events have caused huge ripples in the Web3 and blockchain industries, and we can analyze their impact on the ETH/BTC exchange rate from the following aspects.
The Luna Crash and Its Impact on ETH/BTC Exchange Rate: In May 2022, the algorithmic stablecoin UST and its supporting coin LUNA in the Terra ecosystem collapsed, with LUNA's market value evaporating instantly, leading to chaos in the entire cryptocurrency market. As one of the higher market value public chains at the time, the collapse of Terra spread panic among investors, leading to a large-scale capital flight. Since ETH serves as the backbone of the DeFi ecosystem, its asset security was severely questioned, and the selling pressure increased significantly. The market's panic selling and reduced on-chain liquidity directly led to a significant devaluation of ETH relative to BTC, with the ETH/BTC exchange rate falling to a low point. The ETH/BTC exchange rate in this phase mainly reflected the increased risk-aversion among investors and a decrease in asset risk preference.
The Rebound Brought by Ethereum's Merge Upgrade: Shortly after the Luna incident, the market began to gradually digest the panic, and some investors started to focus on the upcoming Ethereum 2.0 upgrade. In September 2022, the Ethereum community underwent the long-awaited Merge upgrade, marking the transition of the Ethereum network from PoW (Proof of Work) to PoS (Proof of Stake), a shift with significant ecological effects and market prospects. The introduction of the PoS mechanism greatly reduced the energy consumption of the Ethereum network and also lowered the inflation rate of ETH, leading many investors to be confident in the future scarcity and security of ETH.
The Merge upgrade brought about several positive effects:
Change in Supply and Demand Relationship: The introduction of PoS reduced the inflation rate of ETH, and with the increase in staking demand, the supply relatively decreased, thereby raising the market value of ETH.
Improvement in Ecosystem and Security: After the upgrade, ETH gained higher technical security and was labeled as a "green cryptocurrency," attracting a broader range of institutional investors.
Improvement in Market Expectations: The successful upgrade enhanced the market's confidence in the Ethereum ecosystem, which in turn drove the rebound of the ETH/BTC exchange rate. ETH/BTC rose from a low of 0.049 in June 2022 to a high of 0.081 within two months.ETH/BTC Technical Analysis: Will the Exchange Rate Hit Bottom Again?
As of October 25th, the ETH/BTC exchange rate has plummeted to 0.0365, marking a 42-month low. Technical analysis indicates that the current price exhibits a typical inverted cup and handle (IC&H) pattern, suggesting that there may still be some room for ETH/BTC to decline.
Inverted Cup and Handle Pattern Analysis
The ETH price continues to drop, seemingly in the collapse phase of its current inverted cup and handle (IC&H) pattern. It begins with an upward trend, reaches a peak, and then forms a rounded top, resembling an inverted U-shaped "cup." After the inverted cup, there is a smaller and temporary rebound (handle), creating a consolidation period with a slightly upward or horizontal trend.
The IC&H pattern typically dissipates when the price breaks below the neckline support level and falls to a level equal to the maximum distance between the cup top and the neckline.
As of October 26th, ETH/BTC appears to be following such a trajectory, with the next target around 0.032, representing a decline of over 15% from the current price.
RSI and Potential Oversold Rebound
The current monthly Relative Strength Index (RSI) for ETH/BTC is at a historical low of 33, close to the oversold area (below 30), which typically indicates that the market's selling pressure is nearing exhaustion and a reversal rebound may occur. Historical data suggests that when the RSI of ETH/BTC approaches the oversold range, the likelihood of a rebound is high. In this scenario, if ETH/BTC falls within the range of 0.029-0.032 BTC, a strong rebound may ensue, with an expected rebound range of 25%-50%.
Anticipated Rebound TargetsFrom a monthly momentum indicator perspective, if ETH/BTC completes a bottoming within the range of 0.029-0.032 and successfully rebounds, a recovery of 25%-50% could potentially drive its price to the technical support range of 0.048-0.054. For users focused on long-term investment, the current moment presents a potential entry opportunity. Next, we will analyze the key factors supporting the long-term recovery of ETH/BTC.
Drivers of Recovery: Potential Factors Driving the ETH/BTC Rebound
The potential rebound of ETH/BTC is inseparable from the further development of the Ethereum ecosystem and the recovery of market demand. The following drivers will play a significant role in the future rebound.
Ethereum Prague-Electra Upgrade
The Prague-Electra upgrade is scheduled to be gradually implemented from the second half of 2024 to the beginning of 2025, and it has currently entered the testing phase, with some new features being tested on the testnet. Progress is smooth, and the stability of the testnet has been essentially confirmed. The development team is also making final optimizations based on feedback, with the goal of ensuring the robustness of the code and mechanisms before a full-scale rollout on the mainnet.
This upgrade will significantly enhance Ethereum's transaction processing capabilities and fee optimization, which has profound implications for the application scenarios and circulation of ETH. Lower Gas fees and higher throughput will attract a large number of users and developers, helping to further expand Ethereum's leading position in the fields of DeFi, NFTs, and Web3 applications. In addition, on-chain data optimization will reduce the deployment costs for new nodes, which is expected to further increase the degree of network decentralization.
Historically, whenever Ethereum undergoes a significant upgrade (such as the 2.0 Merge upgrade), the market responds positively to the potential of ETH. The Prague-Electra upgrade will bring new growth points for ETH, especially improvements in performance optimization and fee reduction, which may increase the demand for ETH. This growth in network usage typically supports the value of ETH, driving the potential rise of the ETH/BTC exchange rate.
Improvement in Market Sentiment and Positive Progress of ETFs
Although the initial launch of Ethereum ETFs did not meet expectations, as the market stabilizes, the long-term demand support role of ETFs for ETH cannot be ignored. ETF products allow traditional investors to invest in ETH through compliant channels, increasing the opportunity for mainstream capital inflow. If subsequent ETF products can further popularize, they will bring about a new round of market sentiment improvement and drive capital inflow into the Ethereum ecosystem.DeFi and DAPP Ecosystem Growth
Decentralized finance (DeFi) and DAPPs remain core areas within the Ethereum ecosystem. Although competitors like Solana have secured a place in the DeFi and MEME markets, Ethereum still dominates in terms of DeFi locked value and DAPP transaction volume. The total value locked and transaction volume of Ethereum DeFi protocols are expected to rebound during market recoveries, providing further demand support for ETH. With the emergence of DeFi 2.0 and more diverse real-world asset (RWA) applications, the use cases for ETH will continue to expand, and long-term investors can pay attention to the dynamics in these areas.
Changes in the Layer-1 Competitive Landscape
The intense competition among Layer-1 blockchains is one of the biggest challenges Ethereum faces, but it may also become an important opportunity for a future ETH/BTC rebound. While other Layer-1 platforms have clear advantages in terms of processing speed and fees, the Ethereum network is more stable and decentralized, and it has a first-mover advantage in terms of compliance. As the demand for decentralized applications and compliance increases, more developers may return to Ethereum. If the market's demand for mainstream platforms changes in the future, Ethereum's dominant position is expected to be consolidated.
Long-term Investment Strategy: How to Position ETH
For future investment opportunities in Ethereum, investors are advised to adopt the following strategies to flexibly position their long-term investments in Ethereum.
Dollar-Cost Averaging Strategy
The current ETH/BTC exchange rate is at a historical low, and investors can adopt a dollar-cost averaging strategy, spreading risk across different price ranges to reduce the impact of market volatility. Dollar-cost averaging allows for positioning at lower levels to achieve lower costs and gradually increasing holdings as the market recovers, making it suitable for investors who intend to hold long-term.
Staking and Restaking to Increase Holding Returns
Staking and restaking can increase the returns on holdings. By participating in staking, investors can earn rewards in the form of ETH, which can enhance the overall return on investment. Additionally, restaking allows for the compounding of these rewards, further boosting the potential returns. This strategy is particularly attractive for long-term investors who are looking to maximize their returns while supporting the Ethereum network's security and sustainability.ETH's staking rewards offer investors additional passive income. The current annualized yield from staking is around 4%-5%, making it suitable for investors seeking long-term returns. By staking ETH, not only can one earn a stable annualized return, but it also enhances the security and stability of the network, which is attractive to long-term holders.
Pay attention to Layer-2 projects and invest appropriately
The development of Layer-2 solutions will directly impact the stability of Ethereum's ecosystem. Investors can focus on projects such as zkSync, Optimism, Arbitrum, and strategically invest in related Layer-2 projects to diversify risks and lock in the benefits brought by ecosystem expansion. By participating in Layer-2 projects, one can indirectly increase the ecological value of ETH and adapt to future network expansion trends.
Regularly track changes in DeFi and DAPP markets on Ethereum
Ethereum still has a wide range of applications in DeFi and DAPP markets. Investors can closely monitor market dynamics in these areas to understand the demand trends for ETH. The expansion into emerging fields such as decentralized social networking and on-chain assets will further broaden the application scope of Ethereum. Investors can adjust their holding strategies by observing trends in these markets.
Conclusion: Future possibilities for ETH/BTC
In the long term, Ethereum, as a pioneer in smart contracts, has unique advantages in technological innovation, market share, and compliance. The implementation of Layer-2 scaling technology and continuous optimization of the mainnet enhance its application potential.
The current low position of ETH/BTC may become a good opportunity for long-term layout, especially with the market gradually bottoming out and the promotion of Layer-2 technology, the long-term value expectation for ETH is good. It is expected that within the next year, the ETH/BTC exchange rate may rebound by 25%-50% and rise to the range of 0.048 BTC to 0.054 BTC. For users focused on long-term investment, Ethereum remains worth holding long-term. Investors need to pay attention to changes in technological progress and market conditions, and invest in batches at the right time to maximize investment returns.
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