Bitcoin has been outperforming Ethereum (ETH) in 2023, with a 30% increase in its price compared to ETH. The bullish trend for BTC can be observed in the weekly chart, where it is on the verge of pushing ETH to lower spot rates, reaching new lows for this year.
Analyzing the Downtrend and Bitcoin’s Potential Rally
Despite attempts to achieve higher highs in mid-August, BTC continues to extend its rally against ETH, solidifying its dominant position. In the second week of August, ETH managed to gain around 7% against BTC after a period of consolidation, but the bears quickly reversed this progress, following the primary downward trend that has been in place since the beginning of the year.
It appears that the current trajectory of the market is influenced by events that occurred in mid-March 2023. During this time, ETH experienced a significant devaluation against Bitcoin, forming a bearish engulfing bar accompanied by a spike in trading volume. The surge in demand for BTC reversed the progress made by ETH in late October 2022.
Despite BTC’s continued gains against ETH, it is worth noting that the rally is occurring with relatively low trading volume. Since the Q1 2023 rally of BTC against ETH, trading volume has been contracting, even as BTC’s price reaches lower lows.
Examining Regulatory Pressure, Hacks, and the Potential Impact of Halving
It is uncertain whether the current draw-down will continue, as overall participation has significantly decreased over the past six months due to a decline in sentiment. The involvement of regulatory bodies like the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) seems to have had a negative impact on cryptocurrency activity.
In early June, the SEC filed lawsuits against Coinbase and Binance, two major cryptocurrency exchanges. The claims included accusations of unregistered securities listing by Coinbase and various violations, including manipulation, by Binance, both in violation of securities laws. Binance and Coinbase have expressed their intent to defend themselves against the SEC’s allegations.
In addition to regulatory concerns, the cryptocurrency community remains cautious due to the numerous hacks targeting exchanges and decentralized finance (DeFi) protocols. Some of these hacks have been linked to the Lazarus Group, an alleged North Korean-sponsored organization.
Despite the current market lull, traders are eagerly anticipating the Bitcoin halving event scheduled for 2024. This event is expected to create a supply shock, making BTC scarcer. Whether this will result in BTC pushing ETH even lower, potentially reaching the June 2022 lows, remains to be seen.
Feature image from Canva, chart from TradingView
