Ether's Worst Showing Versus Bitcoin Highlights Cycle of Diminishing Returns: Van Straten

Ether (ETH), the second-largest cryptocurrency by market capitalization, has fallen out of investor favor relative to Bitcoin (BTC), returning the worst bull-cycle performance against its larger rival since the Ethereum blockchain’s inception in 2015. A comparison of the ether to bitcoin ratio across past cycles from the tokens’ respective lows shows consistent underperformance. The black line in the chart above represents the current cycle that started in November 2022, when bitcoin bottomed at around $15,500 during the collapse of crypto exchange FTX. With each cycle, ether’s return against bitcoin has diminished.

On Wednesday, the ratio dropped below 0.0300 to touch 0.02993, a four-year low. The previous low was recorded on Jan. 19, a day before President Trump’s inauguration. This month, the ratio — the exchange rate between the two largest cryptocurrencies — is down 15%. It has declined 44% over the past year.

Bitcoin is currently trading around $105,000, having recovered from the slump to $98,000 caused by the release of DeepSeek, a Chinese artificial intelligence (AI) program. Ether, currently at $3,202, would need to reach roughly $3,360 to undo the DeepSeek damage.

“My general take is that the ether to bitcoin ratio underperformance is more due to a strength of bitcoin rather than a weakness of ether,” said Andre Dragosch, head of research at Bitwise’s European desk. “Ether tends to suffer from ‘middle child syndrome,’ it is not as scalable as smart contract competitors like solana (SOL) while it is not really competing with bitcoin as the prime store-of-value.”

Historically, ether's average returns have fallen short of bitcoin's in October. However, analysts at QCP Capital have noted optimistic indicators suggesting that many derivatives traders believe ether has the potential to break its trend of underperformance.

“Historically, October is a strong month for bitcoin, with an average gain of 22.9% in eight out of the last nine years,” analysts from QCP Capital noted. “Ether also tends to perform well, but its average return for October is approximately 5%,” they added.

Despite the potential for the second-largest digital asset to lag behind bitcoin this month, there are signs of optimism for ether in the near term. “We observed a significant number of ether October call options being purchased this morning,” QCP Capital said, pointing to derivatives market indicators. Looking at the current market structure, there are now over 63,600 ether call option contracts, with a notional value of $167 million, set to expire on Oct. 11. A further 26,200 call option contracts, with a value of $69 million, are set to expire on Oct, 18, according to data from Deribit.

The top trading volumes by expiry for ether options are calls for October 11 and October 18. Image: Deribit.

Ether call options with a $2,800 strike price, set to expire on Oct. 11, have experienced the highest trading volume over the past 24 hours, according to the Deribit data. Notably, both the Oct. 11 and Oct. 18 expiries show a significantly lower number of put options.

This disparity indicates a bullish sentiment among many traders, who appear to be betting that the price of ether will rise above the $2,800 mark by the expiration date. The increase in demand for these call options reflects growing near-term optimism for the digital asset in the derivatives market.

Top volume by instrument in ether options for the current day is October 11 call at the $2,800 strike price. Image: Deribit.

Ethereum's historical price trend in Q4
Bitfinex analysts highlight that, while ether typically sees solid returns in the fourth quarter of the year, the performance of the wider altcoin sector tends to be more varied. Historically, the first quarter is often the strongest for both ether and the wider altcoin market, with the second quarter occasionally delivering strong results as well.

However, the analysts further noted that the historical data for ether and altcoins is more limited than that for bitcoin. "It is important to note that the data for ether and altcoin returns are quite dynamic and relatively small compared to bitcoin, as ether only started trading in the second quarter of 2016, and most altcoins in the top 100 by market capitalization were only created in the past three to four years," Bitfinex analysts told The Block.

Historical data of Ethereum's price performance in the financial quarters of the year. Image: Coinglass.

Positive signs in the ether futures market
There are also indications of sustained optimism for ether in the futures market. Data from Coinglass highlights ether’s open interest-weighted funding rate has been trending positively since the broader risk asset sell-off triggered by the Bank of Japan's largely unexpected interest rate hike at the end of July.

Ether open interest-weighted funding rate has remained positive since mid-September. Image: Coinglass.

This move caused a substantial unwind of the yen-carry trade, culminating in a global stock market sell-off on Aug. 5, as investors offloaded U.S. assets to cover interest on their borrowed yen — an event that marked Japan's main stock index's worst day in 37 years.

According to Coinglass data, the last time the ether open-interest-weighted funding rate fell into negative territory was just before Sept. 18, coinciding with the U.S. Federal Reserve's dovish pivot and interest rate cut.

The price of ether increased by over 1.4% in the past 24 hours to trade at $2,638 at 07:49 a.m. ET. Bitcoin dominance is at 53.4%, and ether dominance is at 13.4%, according to CoinGecko data.

Loading...Loading...Loading...A fresh analysis of the trajectory of Bitcoin BTC/USD and Ethereum ETH/USD by a well-known crypto analyst highlighted a trend of diminishing returnsThis by Coin Bureau's Guy Turner was based on a method of analyzing historical gains through key zones of support and resistance.In the context of the ever-evolving world of digital assets, understanding these potential patterns becomes paramount. This topic, among others, will be further explored at Benzinga's Future of Digital Assets conference on Nov. 14, which aims to shed light on the trajectory and potential of cryptocurrencies in the coming years.According to Turner's analysis, during Bitcoin's first cycle, the support and resistance zone was approximately $1,000. With Bitcoin's peak in 2017 reaching about $20,000, this marked a 20x gain.However, in the subsequent cycle, where the key zone was around $10,000 and the top was $70,000 in 2021, the gain was 7x.Also Read: FTX Founder Bankman-Fried Testifies On Controversial Borrowing Practices: 'I Believed It Was Permissible' “This suggests that BTC has diminishing returns over time, which makes sense considering that this is what happens to every asset as it matures,” Turner said.Based on this pattern, Turner forecasted a potential 3x gain from Bitcoin's current key zone to its next peak.Given the current cycle's key zone was approximated at $40,000, this suggested a Bitcoin price of around $120,000 in the next cycle.Loading...Loading...Loading...Ethereum, another major cryptocurrency, wasn't exempt from this pattern.Turner pointed out Ethereum seemed to be tailing Bitcoin by one cycle. With Ethereum's previous cycle support zone at $250 and a 2021 top of around $5,000, there was a 20x gain.Projecting forward, Turner predicted a 7x gain from Ethereum's current zone of around $2,500, hinting at a possible price of $15,000, which aligned with several other market predictions.Read Next: Republican Lawmakers Urge DOJ To Investigate Binance Over Illicit Financing AllegationsJoin Benzinga's Fintech Deal Day & Awards on Nov. 13 and Future of Digital Assets on Nov. 14 in New York City to stay updated on trends like AI, regulations, SEC actions and institutional adoption in the crypto space.!Photo: ShutterstockLoading...Loading...Loading...