Ahhh the woes of Ethereum. Since the start of the year, Ethereum has dropped by a very significant 46% against Bitcoin, causing Ethereum plummets from a high above 0.04 BTC to where it currently trades at 0.024 BTC. Regardless of this, Ethereum may have actually reached a floor against BTC - and if it can reverse, it could potentially outperform Bitcoin in the next bull run.

If you were to compare both cryptocurrencies at their US Dollar prices (such as in the graph below), you would be right in thinking that the cryptocurrencies are very highly correlated. In fact, it looks like they have been both increasing at a similar pace before Bitcoin started to roll over in July causing ETH/USD to plummet also.

However, when considering the correlation it is very difficult to compare the price of Bitcoin to the US Dollar value of an altcoin because the price for the altcoin is largely derived from the BTC price. According to bitinfocharts, the correlation between Ethereum and Bitcoin currently sits at 0.482. This shows that Ethereum and Bitcoin are correlated, but not as much as you might think. A correlation of 1 shows that the 2 markets are directly correlated and a correlation of -1 shows they are inversely correlated. However, a correlation of 0.482 shows a weak correlation which has been growing weaker as the year progresses.

Taking a look at the coinchekup.com data below, we can see that over the past 3 months, Bitcoin has increased by almost 90% but Ethereum has only managed to increase by a total of 41%. This alone should point to the fact that these two markets are not correlated at all.

This is due to the simple fact that Ethereum has been plummeting against Bitcoin all year long. Let us take a look at the ETH/BTC market below.

ETH/BTC - Long Term Analysis

Looking at the daily chart above, it is clear to see the struggle that Etheruem has experienced against Bitcoin. The cryptocurrency has been consistently falling month-on-month since the start of the year with little to no respite.

The pace of the downtrend accelerated during June which saw Ethereum drop by a total of 31% against Bitcoin. The market fell from a high above 0.03 BTC and continued to fall until finding support at the 0.021 BTC level. We can see that when ETHBTC reached this area of support, a small rebound has been witnessed.

During this recent rebound, we can also see that the RSI has managed to penetrate above the 50 level once again. It is too early to state if the RSI can remain above this level but if it can continue to climb higher, we can expect ETHBTC to rise up out of the slump that it has been trading within all year long.

If the bulls do regroup and start to power higher, the first level of resistance to break above is located at 0.023 BTC. This area of resistance is bolstered by the upper boundary of a descending channel and the 21 day EMA. If ETHBTC can break above this, I feel a reversal may be in play.

If the bulls continue to climb further higher, more resistance will be found at 0.024 BTC, 0.0245 BTC and 0.026 BTC.

Let us quickly continue to take a look at the ETHUSD market and take a look at what has been developing here.

ETH/USD

Looking at the ETHUSD chart above we can see the clear impact that Bitcoin dropping below $10,000 has had on ETHUSD. After peaking around $335 toward the end of June we can see that Ethereum rolled over and started to fall aggressively. ETHUSD dropped beneath major support levels at $300, $250, the 100 day EMA and the 200 day EMA to rebound beneath $200 at the short term .786 Fibonacci Retracement level priced at $193.

Ethereum is now contesting resistance at the 200 day EMA and will still need to deal with the 100 day above at $240 if it would like to continue back toward $300.

Conclusion

I want to be VERY clear. I do not think Ethereum will overtake the market cap of Bitcoin in the next bull run (or even the next 5 bull runs). However, if ETHBTC can capitalize on the recent strength seen and continue to climb further higher even when Bitcoin breaks back above $10,000 then the growth for ETHUSD will most certainly outstrip BTCUSD. This is entirely possible if ETHBTC can start some form of recovery.