HomeMarket uncertainty leads to Crypto rally

Market uncertainty leads to Crypto rally

6 November 2020 By Mircea Vasiu

The current volatility in the world has boosted cryptocurrency prices, resulting in  Bitcoin rallying above $15,000 for the first time since 2018, spurring the imagination of “holders”.  Truth be told, the frenzy in the currency market continued unabated ever since Bitcoin bounced from the $10,000 mark. 

This came at a time when Square revealed an investment in the coin, and PayPal announced the introduction of some cryptocurrencies on its online payments platform. One of those currencies being Ethereum.

Ethereum and a Story of a 400% Rise in 2020

While everyone is focused on Bitcoin (and for a good reason), Ethereum had a spectacular year so far. It rose from $100 in March when the coronavirus pandemic hit the Western world to over $400 in September. The 400% rise outpaced the upside trip in Bitcoin, as Ethereum traded $480 as soon as September this year. Or, Bitcoin only broke the $15k level yesterday, after dipping to $4k in March.

This is interesting because Bitcoin sets the tone for the cryptocurrency market. If Bitcoin rises, the main altcoins rise too. If, on the other hand, Bitcoin declines, the rest will eventually follow.

However, Ethereum enjoyed a “special year.” For example, in the second quarter of the year, when Bitcoin struggled to recover the $10k level, Ethereum recorded an average of over 860 daily transactions. In comparison, the average daily transactions for Bitcoin over the same period did not even reach 300. Moreover, other altcoins saw less than one-tenth of the volume registered on Ethereum.

So why the sudden interest in Ethereum and not Bitcoin? Here are a couple of reasons. First, the market value of one coin. Few retail traders afford one Bitcoin at $4k, but many afford 1 Ether at $100. It is the same psychological process that leads stock traders to buy penny stocks.

Second, Ethereum’s drop from the 2017 highs was much more severe than Bitcoin’s. More precisely, it dropped from $1,400 to $90 in less than one year. Hence, many traders viewed it as undervalued when compared to Bitcoin.

However, do not expect the tight correlation with Bitcoin to go away. The cryptocurrency market, and especially the top ten cryptocurrencies, rarely diverge from the main sentiment unless something internal happens. As such, for as long as Bitcoin continues its bullish trend, Ethereum may be the one that rises faster. After all, it dropped much more than Bitcoin on the first real correction in 2017.

Before buying, though, think of the fact that the opposite is true as well. If Bitcoin declines, Ethereum declines faster.