Ethereum ETF rumors have caused the ETH/BTC ratio to rise sharply.
The ETH/BTC ratio indicates the relative strength of Ethereum (ETH) against Bitcoin (BTC). Since the two coins are the two largest coins by market capitalization and the two largest cryptocurrency ecosystems in general, it makes sense to compare their relationship to better understand the market. Tracking the ETH/BTC ratio is important as it reflects market sentiment towards ETH versus BTC. An increasing ratio indicates that ETH is outperforming BTC, indicating either increased confidence in ETH or a decline in BTC price.
Long-term holders may not pay much attention to ratios, but active traders use them to make decisions about trading positions to take advantage of volatility. This ratio also measures the relative strength of ETH against BTC, helping us understand changes in market power that could result in volatility.
The week started off strong with the ETH/BTC ratio showing tremendous volatility. The market was abuzz with speculation about the approval of a spot Ethereum ETF in the United States. These predictions had a particular impact on ETH and BTC prices, and subsequently affected their rates as well.
Over the past 30 days, the rate has remained relatively stable at around 0.0485 around April 24th. At the time, both ETH and BTC showed only moderate price fluctuations, with no significant differences that would cause the ratio to increase.
We first saw a noticeable percentage increase around April 27, reaching 0.0513. This is associated with a slight increase in the price of ETH from $3,140 to $3,250. This increase pushed the ratio higher as BTC remained relatively stable at the time. This increase continued until the end of April. However, the positive momentum was broken as the rate fell in May. When it began to recover, it fell to 0.0451 on May 16th and then rose to 0.0513 on May 20th. This slow and steady increase gave way to a nearly vertical rise between May 20 and May 21, peaking at around 0.0560.
Bitcoin has also seen significant price fluctuations, reaching $71,400 on May 20, while ETH has seen much more aggressive surges. It surged above $3,790 on May 21, corrected slightly to $3,730 on May 22, and rose to $3,948 on May 23 before a decision on the Ethereum ETF was made.
The sharp rise in these rates is not surprising, as analysts have revised their odds of approval for the ETH ETF to 75% amid rumors of a potentially friendly stance from the SEC. These rumors were enough to fuel speculation as traders positioned themselves to take advantage of the expected ETH inflows upon ETF approval.
The possible approval of the ETH ETF is an important step toward institutional adoption of Ethereum, similar to the impact seen with the Bitcoin ETF. But with US regulators struggling for years to decide whether to classify ETH as a commodity or a security, the approval of an ETH ETF would have an even more significant impact on the broader cryptocurrency market. This outlook has fueled ETH’s rally, as seen in the narrowing discount on Grayscale’s Ethereum Trust and the increase in USDT issuance on Ethereum in anticipation of the ETF.
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