Bitcoin and Ethereum's Dance: A 2024 Reprise of 2021

In the dynamic world of cryptocurrencies, Bitcoin (BTC) and Ethereum (ETH) have always had an intriguing relationship. This dance between the two largest cryptocurrencies has seen many twists and turns, with their prices often moving in sync, yet sometimes diverging. In 2024, we're witnessing a fascinating chapter in their story – a situation not seen since April 2021. Let's dive into the numbers and explore what this could mean for Ethereum.



The Ethereum-Bitcoin Ratio

When looking at the relationship between Bitcoin and Ethereum, many investors focus on their price ratio. This ratio, calculated by dividing Ethereum's price by Bitcoin's price, offers insights into their relative valuation. In recent months, this ratio has fallen to unprecedented levels, reaching as low as 0.035 – a figure not seen since April 2021.

Data source: TradingView. Chart by author.

This decline in the Ethereum-Bitcoin ratio suggests that Ethereum might be undervalued relative to Bitcoin. To put this into perspective, the average ratio over the past four years is 0.0538. Ethereum has performed well since Election Day, rising approximately 38% compared to Bitcoin's 44%. However, Bitcoin has widely outperformed Ethereum this year, which could explain the ratio's decline.

The Crypto Rally and Sentiment

One theory behind Ethereum's potential rally is the broadened sentiment in the crypto market. As seen in the stock market this year, markets and sectors tend to broaden over time. Bitcoin and the crypto market have rallied significantly, but it usually takes time for sentiment to peak and then decline again. I don't think the positive sentiment on crypto has topped out yet, which could be a tailwind for Ethereum.



Ethereum's Unique Value Proposition

Ethereum's value isn't solely tied to its potential as an inflation hedge like Bitcoin. Its relatively new proof-of-stake method for validating transactions is much more energy-efficient than Bitcoin's proof-of-work. Additionally, developers view Ethereum as the prime network for creating decentralized applications and non-fungible tokens (NFTs), with its smart contract capabilities likely to have use cases in many industries.

The upcoming Ethereum EIP-4844 upgrade, or Protodanksharding, could also prove a significant catalyst. This upgrade is expected to take place during the first half of 2024 and is likely to improve Ethereum network activity, helping Ethereum outperform Bitcoin.



A Big Move for Ethereum?

Given that the Ethereum-Bitcoin ratio has fallen to levels not seen since April 2021, it's reasonable to wonder if Ethereum is poised for a significant rally. In the past, low ratio levels have triggered substantial moves for Ethereum. For example, when the ratio fell to similar levels in 2021, Ethereum rallied an impressive 120% over the following two months.

Of course, past trends do not always indicate future success. However, the recent trends in the Ethereum-Bitcoin ratio set up favorably for Ethereum, especially if the crypto rally continues. As the regulatory environment improves and the market sentiment broadens, Ethereum's unique value proposition and upcoming upgrades could catapult it to new heights.

In conclusion, the relationship between Bitcoin and Ethereum is dancing to a tune not heard since 2021. If history is any guide, this could signal a big move for Ethereum in the near future. As always, it's essential to stay informed and make investment decisions based on thorough research and a well-diversified portfolio.