It’s commonly believed that the altcoins’ market follows Bitcoin’s trend. However, the price of most tokens is driven by different reasons like technical development or popularity on social networks. Ethereum confidently demonstrates this.
Since its launch, Ethereum has been literally closely following Bitcoin. Almost all the time of presence on the crypto market ETH keeps the position of the second crypto by the market capitalization. Also, when you compare their price graphs, you’ll see a clear similarity when they reach the highs and downs.
However, last year Ethereum confirmed its independence in terms of the market shifts. As soon as BTC started the rally, ETH happily took up the challenge and, of course, made its way to the leading positions. At first, Ether could not stand the general market downtrend. Its price fell on the same day that BTC and major altcoins showed weakness. Still, there was a strong uptrend in April and the first half of May, even as BTC faced a 15% correction two weeks after hitting ATH of around $62,000.
Ether is currently down by 40% in just two weeks after reaching its highest historical price of nearly $4,000.
How did ETH manage to keep up the uptrend for almost two months and will it follow BTC further? Let’s think about it together.
Bitcoin vs Ethereum: brothers or competitors?
Following our goal to find out whether ETH will repeat the BTC history, we’ll start the brainstorm from the basics. What purposes do the projects behind the coins pursue and how they have succeeded in the crypto industry and on the crypto market.
Bitcoin — digital cash
The Bitcoin network was created with the main idea to give life to the decentralized finance system. Its developer, or group of developers, called Satoshi Nakomoto, created an online network without a single server or authority controlling it. To maintain the security of operations in this system, they used cryptographic algorithms and distributed the ledger to all the participants. Additionally, every new transaction was recorded in strict chronological order — like a chain. That’s how the blockchain got its name.
To ruin or modify this order a user should have computing power equal to or more than half of the power of all other computers connected to the network. This is almost impossible, so blockchain technology is considered one of the most secure in the finance sphere.
Mainly, Bitcoin, the currency running on the first created blockchain, acts as cash in the digital world. It makes it possible for people all over the world to transfer money over long distances quickly, securely, and for low fees.
Ethereum — smart contracts manager
When considering creating a new blockchain, the Ethereum founder, Vitalik Buterin, wanted to design an advanced version of Bitcoin. Not only did he want to create a network with higher transaction processing speed and scalability, but also to invent a completely new product with extended possibilities. Just like Samsung added cameras to their mobile phones twenty years ago.
So, what features Ethereum developers desired to see in their blockchain? Firstly, they made smart contracts (SC) accessible to everyday users. Generally, smart contracts are digital agreements between people or institutions validated without third parties, but with the cryptographic algorithms used on the blockchain. However, in modern reality, the term ‘smart contract’ is associated with the Ethereum network since the network creates more use cases for them.
Thanks to the use of SM, Ethereum users can build decentralized applications (dApps), issue their own cryptocurrencies and NFT tokens, and many more. Nonetheless, Ethereum is a digital asset and a cryptocurrency that can be bought, sold, and traded on exchange platforms.
How it was at the start
Bitcoin (BTC) and Ethereum (ETH) were lower than a dollar when the trading was launched. The only difference is that Bitcoin was launched five years before Ethereum. So when the ETH to USD pair had just appeared on the market, the first crypto had already been trading at near $300.
Another similarity in the ETH and BTC price history is that both assets needed around three years to cross the mark of $1,000 and reach their first all-time-high. And again: there were completely different three years and the Ethereum spike coincided with the crypto rally of 2017. At that time, BTC had already reached the rate of near $17,000 setting the pace for altcoins.
Why Ethereum is cheaper than Bitcoin?
There are numerous factors that can influence the price of a digital asset. The strongest of them are probably use cases, the network operability (speed, security, fees), and the coin’s popularity among experts and everyday users.
The facts are that the Ethereum network is able to process transactions roughly eight times faster than Bitcoin (an approximate 25 transactions per second compared to nearly 3). The use of smart contracts extends the number of use cases when BTC is mostly used for conducting payment operations. Additionally, thanks to the constant network development and launch of new products, Ethereum is often in the public eye.
Some experts explain Bitcoin’s price advantage with the simple utility. Including the fact that cryptocurrency enthusiasts are mostly investors, digital assets are frequently used for speculation on the market prices and getting profit. We can bet that 95% of Ethereum users have a crypto trading app on their smartphone.
Bitcoin can store the value and consumers don’t need it to do anything more than validating the ownership and keep transaction records safe. From this point, Bitcoin performs well, indeed, maybe even better than Ethereum.
Should we follow BTC charts to predict ETH shifts?
Every investor knows that a successful portfolio should be diversified with at least 2-3 assets. So if the price of one of them falls you’ll have a place for maneuver. However, the analysis of historical price charts shows that Bitcoin often has the final word when it comes to market sentiment. So when the leader tries new heights, it usually takes altcoins with him and vice versa — most tokens can not stand the crash on the market when the BTC value falls. That’s why many experienced traders usually pay attention to the Bitcoin rate before buying or selling altcoins.
This also happened to Ether (ETH). During its trading history, the asset almost copied the BTC trends rising and falling in the same periods. However, it doesn’t necessarily mean the situation will be like this all the time. If you look at the ETH to BTC price chart, you can see that it fluctuates dramatically. That means that the value of both assets is changing independently.
We could analyze the theory of correlation between BTC and ETH for miles and miles since the crypto market doesn’t standstill. But the conclusion suggests itself — you can not rely on a single indicator in your cryptoanalysis. So, make informed decisions by estimating different factors.