Bitcoin Breaks Out & ETH Recovers Its Strength

Bitcoin broke out USD7,200 resistance on Apr 23, coinciding with gold’s price strength. Historical BTC/Gold charts indicate that the Bitcoin big bull trend emerges when it appreciates significantly against gold. Indeed, Bitcoin has just recovered from the lows and remains relatively stable against gold. From past experiences, we don’t see a high chance of another epic bull run for now. However, please be reminded that gold did not perform well after falling from its historical high in 2011. Things have changed, as gold will inevitably reach new all-time highs with tremendous liquidity released by the Fed. It is possible that Bitcoin enters a bull market while BTC/Gold remains stable. If Bitcoin even accelerates at a rising pace versus gold, that would be a strong signal of a new chapter.

While we are bullish on Bitcoin in the long term, Ethereum has performed even better from January. Looking at the weekly and daily charts of ETH/BTC, ETH has just stepped out of the historical bottom, and is challenging the former support and resistance at around 0.025. ETH has never fallen below this level before July 2019. It fell through the support due to disappointment over the continuous delays of ETH 2.0 and has never came back since.

Since January 2020, ETH significantly outperformed BTC, but is still 80% lower than its historical high. What drives this new trend? Will this trend continue? We believe the progress of ETH 2.0 is still the main driver. Simply from the perspective of supply and demand, ETH 2.0 will reduce the supply of ETH as it still requires ETH staking of operating nodes. On the other hand, ETH 2.0 will provide higher efficiencies and higher transaction speeds, and thus could boost ETH demand from related business, such as DeFi. Beacon chain as part of the overall transition to ETH 2.0 is said to be released in July, which may encourage ETH investors.

DeFi will increase demand for ETH, and it actually has already happened. Since March, ETH daily gas used has remained above 50 billion, thanks to strong on-chain activities. ERC-20 Tether transfers accounted for more than 25% of the overall transactions, while it was only 1% in June 2019. Smart contract transactions (mainly DeFi) represent around 45% of the overall transactions, and ETH transfers account for 30%.

It is definitely worth paying close attention to the latest developments of ETH 2.0.