3 reasons Ethereum is down as Bitcoin rallies

The price of Bitcoin (BTC) surged sharply, while Ethereum (ETH) and other large-cap alternative cryptocurrencies (altcoin) plummeted. In previous bullish cycles, the ETH front was managing BTC, not the other way around.

The current market dynamics are disturbing as the price of Bitcoin has only risen, while the cryptocurrency market stagnates. In fact, major altcoins, including Ethereum, have fallen in value against both BTC and the US dollar over the past nine days.

Three factors are likely causing Ethereum and altcoin to underperform against Bitcoin. First, the profits appear to be returning to BTC. Second, BTC’s technical momentum remains strong. Third, BTC’s volume share is increasing relative to other cryptocurrencies.

According to Kelvin Koh, a general partner of the Spartan Group, the capital is rotating from altcoin to Bitcoin. Typically, after a major alternate season or decentralized finance (DeFi) cycle, capital tends to flow back into BTC.

If the trend continues, with a significant amount of capital on the sidelines, Koh noticed that the $ 14,000 to $ 15,000 range is likely for BTC.

“Money is returning from the altcoins to $ BTC. This rotation is ongoing and will give $ BTC some decent short-term momentum which is likely to take it to $ 14-15K. DeFi coins are oversold in this process which creates decent entry levels for people with longer time horizons, ”he said.

On top of the rotating capital, investors are pinpointing the status of the futures market as a potential catalyst for Bitcoin.

Mohit Sorout, the founding partner of Bitazu Capital, said the funding rate of the Bitcoin futures market remains neutral or negative.

The Bitcoin futures market implements a mechanism called “financing” to achieve equilibrium in the market. For example, if most of the market wants BTC, the funding rate turns positive. In that case, long contract holders or buyers have to pay short sellers or sellers.

“We couldn’t have asked for a better base and funding as $ btc is knocking at 12k. It’s only a matter of time before the fireworks start, “Sorout She said.

As the negative futures market continues to push BTC higher, it is drying up Ethereum and the altcoin market.

In addition to the negative funding rate and rolling profits, the US dollar index struggled to recover. Since March, it has fallen significantly against other reserve currencies such as the Swiss franc and the Japanese yen.

When the dollar falls, it benefits safe-haven assets such as gold. Since Bitcoin is also priced against the US dollar, it directly increases sentiment around BTC. Theoretically, a falling dollar should also benefit Ethereum. But the perception of a store of value and a safe haven asset is stronger with Bitcoin than with Ethereum.

The combination of favorable technical, fundamental and macro factors appears to be pushing Bitcoin higher in the short term. It remains uncertain whether the trend can continue without a pullback.

Some traders and investors believe BTC’s momentum is simply too strong after breaching a key technical resistance level at $ 12,000. Others believe that since the last local high was reached at $ 12,500, the correction is due.