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Will ETH Continue in Its Five-Year Downtrend Versus BTC?


By Frank Corva 

Ether (ETH) has been losing value against Bitcoin (BTC) since June 2017.

This may seem counterintuitive to some, as the Ethereum network has expanded more rapidly than the Bitcoin network in the past five years.

According to Metcalfe’s Law, the value of a network should increase as the number of participants on the network increases, yet the value of ETH has been losing strength against BTC over the last five years.

A failed ETH breakout around the Merge

The following chart illustrates what percentage of 1 BTC you could buy with 1 ETH since 2017. 

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TradingView Chart – ETHBTC

In June 2017, you could have traded 1 ETH for over 0.15 BTC. As of October 2022, that same 1 ETH would only get you about 0.066 of a Bitcoin.

The blue line on the chart shows this downtrend. 

The big question now is: Can ETH break out of this pattern?

You can see that it temporarily did in September 2022 leading up to the Merge, but it has since retraced and fallen back into the downtrend pattern.

That being said, ETH’s value hasn’t retraced as severely from the trendline as it did during the 2019 to 2020 crypto winter

It’s hovering much closer to the trendline during this crypto bear market as compared to the last one, though it’s still struggling to break the trend.

Narrative shift

Bitcoin was created as a monetary network governments couldn’t control, and it still is such a network. 

Ethereum was once similar to Bitcoin in this regard, but it no longer is post-Merge. 

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) now has notable control over the Ethereum network. 

As of October 18, 2022, 53% of the validators on Ethereum are OFAC compliant — which is to say these validators can be sanctioned by the US government if they validate blocks on Ethereum that include transactions that the U.S. government doesn’t approve of. 

Ran Neuner, host of the popular crypto YouTube channel Crypto Banter, has been vocal about this issue.

He recently published the following tweet: 

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He expanded on what he mentioned in this tweet on an episode of Crypto Banter that aired on October 17, 2022. In the episode, he stated:

Over 50% of Ethereum blocks are now OFAC compliant or are run by companies that are compliant with OFAC regulation. [This] means that the US government pretty much controls what blocks can be mined on Ethereum and what blocks can’t be mined on Ethereum…We’ve taken the second biggest cryptocurrency and we’ve made it pretty much under the control of the U.S. government… I think that’s sad…I did this [invested in crypto] to get away from government control, not to give the government more control. And now, in the US… if you want to stake your Ethereum you’re gonna have to KYC. It’s moving us from one system — one centralized system — to another centralized system with maybe slightly better technology. That’s all it is.”

As Neuner also mentioned, OFAC doesn’t have this type of control over Bitcoin.

This narrative shift for ETH will likely not help it break out of its downtrend versus BTC — at least as far as crypto investors who care about censorship resistance are concerned.

Might more regulation and centralization be good for the value of ETH?

If ETH is now a more heavily-regulated and centrally-controlled entity, as Neuner stated, is it really fair to chart it against BTC? 

To put this question another way: Are we simply comparing apples to oranges when comparing the value of ETH to BTC? 

Yes and no.

Yes, in that as the Ethereum network becomes more regulated and more centralized, it may actually attract more institutional investors. Wall Street-type investors tend to prefer ETH to BTC because the Ethereum network is easier to control and manipulate than the Bitcoin network.

No, in that ETH and BTC are still the two largest cryptocurrencies by market cap, and their competing value propositions warrant comparison. 

Only time will tell now whether or not the Merge will have been the catalyst ETH needed to break out of its downtrend against BTC.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



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