Ethereum hits 3-week high against Bitcoin amid Fed-led market crisis

Ethereum’s native token Ether (ETH) plunged to its worst level in almost two months against the US dollar on May 6 as the crisis in financial markets gripped the cryptocurrency sector. Nonetheless, ETH outperformed Bitcoin (BTC), with the ETH/BTC pair hitting a three-week high.

ETH/BTC daily chart. Source: TradingView

The merge effect

Lots of analysts credited The merger of Ethereum to Proof-of-Stake from Proof-of-Work is one of the main reasons behind capital rotation from Ether to Bitcoin markets, including Toast.ETH, a pseudonymous analyst who underlined Ether’s ongoing supply reduction is another reason why ETH may currently be outperforming BTC.

Interestingly, Ethereum has grown nearly 250% against Bitcoin since it began its migration to proof-of-stake in December 2020.

ETH/BTC weekly price chart. Source: TradingView

Eliezer Ndinga, research lead at 21 Shares, a Zug-based crypto ETP provider, pointed out that liquid staking could also play a big role in reducing selling pressure.

Upside prospects for ETH/BTC

Technicals suggest that ETH/BTC could continue growing in May, but risks a broader correction overall as it trades within a rising wedge pattern.

The pair rallied after testing the wedge’s lower trendline as support on April 30th and is now moving towards the upper trendline (around 0.078) as a preliminary upside target.

Related: Bitcoin’s bumpy road to becoming a risk-free asset: Analysts are investigating

However, since rising wedges are typically bearish reversal patterns, the likelihood of ETH/BTC breaking down remains higher in the long term.

ETH/BTC daily price chart with “rising wedge” setup. Source: TradingView

As a rule of technical analysis, a breakdown of the rising wedge causes the price to crash to a level whose length is the maximum height of the pattern measured from the breakdown point, i.e. 0.064–0.069.

ETH/USD bearish scenario

Technical signals point to more downside prospects for Ether in the coming months, with a “bear flag” pattern projecting ETH’s price drop to $1,700 in Q2, down around 40% from the May 6 price.

Weekly ETH/USD price chart with Bear Flag setup. Source: TradingView

Conversely, a bounce off the flag lower trendline could see Ether retest $4,000.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Every investment and trading move involves risk, you should do your own research when making a decision.