Ethereum Does 20% Better Than Bitcoin, But Will It Sustain $2.5K?

ETH surge is supported by an uptick in on-chain activity and the market's expectation of a network upgrade and a spot ETF. However, the question lingers: is this momentum sufficient?

Source: capital.com

Between January 8 and January 11, Ethereum's native token, Ether, experienced a notable 20% rally, reaching $2,600. Despite a subsequent 3.5% correction to $2,560 on January 16, Ether has demonstrated a 19.5% outperformance compared to Bitcoin since January 8. Such divergences are rare and were last observed in October 2022.

Investors in Ether are now contemplating the sustainability of the $2,500 level, especially considering that key catalysts, namely the Ethereum spot exchange-traded fund (ETF) and planned network upgrades, are not expected in the short term. While these events could offer an opportunity for Ether to decouple further from the broader cryptocurrency market, they also pose a risk if they fail to materialize or face delays.

The phenomenon of Ether outperforming Bitcoin by 15% or more in a week is uncommon, particularly in the last two years. Despite their historically high correlation, 2023 saw Ethereum grappling with a decline in total value locked (TVL) and persistently elevated gas fees, creating room for rival blockchains. Meanwhile, Bitcoin enjoyed positive sentiment fueled by the anticipation of spot ETF approval, notably after BlackRock entered the competition in June 2023. The most recent occurrence of Ether outperforming Bitcoin by a significant margin took place 14 months ago when Ether surged from $1,305 to $1,615 in the seven days leading up to October 29, 2022.

Despite a 17% outperformance, the gap closed in the subsequent 11 days as ETH experienced a sharp decline below $1,100 on November 9, 2022. It's crucial to note that relying on a single historical instance as a pricing guide may not be prudent, especially considering the tumultuous events in November 2022, including the downfall of the FTX exchange due to reports of customer funds mismanagement and a potential $8 billion shortfall. A counter-example is the 31-day period between July 13, 2022, and August 13, 2022, where Ether's price outpaced Bitcoin by 63%.

During the mentioned 31 days ending on August 13, 2022, ETH rallied from $1,080 to $1,990. Despite falling short of breaking the $2,000 mark, the performance gap relative to Bitcoin's price persisted in the following month. This type of price action contrasts with the brief outperformance in October 2022. Notably, the gap continued even as the overall cryptocurrency market capitalization experienced a correction, which diverged from the typical expectation given Bitcoin's dominance. To assess whether Ether can maintain support at the $2,500 level, an analysis of Ethereum network activity, including its scaling solutions, is crucial. Since decentralized applications (DApps) are integral to this smart contract-capable blockchain, a decrease in usage in terms of both users and volumes could indicate lower demand for ETH.

Disclaimer: FameEX makes no representations on the accuracy or suitability of any official statements made by the exchange regarding the data in this area or any related financial advice.