Ethereum Diverges From Bitcoin While Showing Weakness

While the prices of Bitcoin and Ethereum have generally had a positive correlation, this has not been the case recently. Well-known trader @CryptoCapo_ outlined a chart showing the prices of BTC and ETH, which have diverged.

If this occurrence continues, any possible BTC increase will not have a positive effect on the price of Ethereum. Below, we will take a closer look at the relationship between the prices of Bitcoin and Ethereum — and analyze the price outlook for the latter.

Comparison

The price of both Ethereum (red) and Bitcoin (blue) is shown in the image below, which encompasses the time period since July 2019. Until now, there have been four important divergences between the price of Ethereum and Bitcoin. Twice, Ethereum has gone up while Bitcoin has gone down (Sep. & Oct. 2019), while the opposite has also occurred twice (Dec. 2019 & May 2020). We cannot use this occurrence to determine the direction of the future movement since Ethereum has moved both upward and downward after diverging up and down. However, the preceding trend prior to the divergence gives us a possible pattern we can use. When the divergence with Bitcoin has occurred after an upward move, Ethereum has gone down. If the divergence has occurred after a downward move, Ethereum has gone up. Over the past 49 days, ETH and BTC have been positively correlated during the upward move that began on March 13. The divergence is present since April 30. Therefore, if the pattern holds true, Ethereum will soon move downward.

Ethereum Price Movement

The Ethereum price has been increasing since March 13, trading inside a very steep ascending channel. At the time of writing, it was trading close to the resistance line of this channel, along with the $220 resistance area. The RSI has begun to generate bearish divergence, suggesting that the price might soon break down from this channel. This would fit in with the hypothesis from the divergence which we analyzed in the previous section. If Ethereum breaks down, it could go begin a rapid drop and go straight to the $145 support area after possibly bouncing at the minor support $170. A decisive break above the $220 area and the ascending channel would invalidate this possibility. To conclude, the Ethereum price is trading very close to a major resistance area and the resistance line of its pattern. A breakout above this level would have major bullish implications for the price. However, technical indicators and the divergence with the Bitcoin price suggest that the price will be unsuccessful in doing so and will break down instead.