Divergent On-Chain Trends Within the Ethereum/Bitcoin Network Add Reasons ETH/BTC Price May Continue to Fall

The exchange rate between Bitcoin (BTC), the world’s first and largest cryptocurrency by market capitalization, and Ether (ETH), the world’s second largest cryptocurrency by market capitalization that powers the Ethereum blockchain, has fallen rapidly in recent weeks.

ETH/BTC last changed hands on Binance (according to TradingView) around 0.0625, down around 15% from previous monthly highs in the 0.0735 range and at its lowest level since July 2022.

ETH/BTC’s downside is not a result of Ether performing poorly. On the contrary, at current levels in the $1750s, Ether is up just 10% this month and is up over 27% compared to previous monthly lows below $1400.

The problem for Ether is that, like most other cryptocurrencies, it has not been able to keep up with Bitcoin. Bitcoin has led a price higher in cryptocurrency markets amid what analysts have referred to as a “safe haven” bid as cracks form in the global banking system.

Concerns about financial stability benefit Bitcoin disproportionately

After three major regional US banks went under earlier this month, Credit Suisse was bought out by Swiss rival UBS over the weekend. Meanwhile, a consortium of US banks came together last week to provide a $30 billion bailout to US bank First Republic.

Despite government efforts to calm the situation, investors remain aware that more banks, in the US and elsewhere, may be on the verge of failure. And while this dampens sentiment in US stock markets, it helps safe-haven assets like gold, and it also appears to be helping cryptocurrencies like Bitcoin.

Gold formed the bedrock of most civilizations’ financial systems for thousands of years, and when problems in the fiat-based, central bank-centric fractional reserve banking system emerge, many investors like to flock back to gold, which many see as the ultimate haven.

But Bitcoin, which many refer to as “digital gold”, is increasingly seen as a safe haven. It is, after all, a very robust, highly decentralized payment system that operates completely separately from the traditional financial system.

Ether can also claim to be robust, decentralized and independent of the traditional financial system. In fact, given its smart programmability, it arguably goes beyond Bitcoin in that an independent decentralized financial ecosystem can be built directly on top of the blockchain (and is already being built).

But Ether is only about half the age of Bitcoin. In the eyes of many investors, Bitcoin has more confidence, especially given that its future prospects do not depend on the efforts of programmers (such as the Ethereum Foundation which is still working on upgrading the Ethereum blockchain). Bitcoin is expected to remain pretty much exactly the way it is right now, more or less like gold.

While the Fed’s rate hike cycle may not be over yet (they could raise rates by 25 bps this week), markets are already betting on the cut cycle, with many expecting it to arrive soon amid banking sector turbulence. Easing economic conditions may well help lift cryptocurrencies broadly (including Ether), although Bitcoin is likely to maintain its lead on the extra safe haven bid.

On-chain Trends favor further ETH/BTC downside

Just as investors are increasingly turning to Bitcoin as a safe haven, various core activity metrics are trending higher, showing a growing demand for network exploitation. By many of the same metrics, the Ethereum blockchain shows no such activity.

While this likely won’t directly prevent Ether from continuing to rally (not if the broader crypto market continues to pump), it could make it difficult for ETH to keep up with Bitcoin, meaning potential further downside for the ETH/BTC exchange rate .

The first value to note is the number of transactions that take place on a daily basis. As you can see in the graphs below presented by The Block, this metric recently reached its highest level since early 2021 for the Bitcoin network, but remains muted and within recent levels for the Ethereum network.

Meanwhile, while the increase in the number of active addresses on the Bitcoin network in recent weeks has not been quite as impressive, the count is still near multi-month highs. The same cannot be said for the number of active addresses on the Ethereum network.

Elsewhere, the rate at which new addresses are interacting with the Bitcoin network for the first time has also trended higher. The same cannot be said for the Ethereum network, with new addresses remaining near multi-year lows.