Bitcoin performed far better than Ethereum in the first quarter. Will Ethereum catch up?

The first quarter market is coming to an end. According to the data from Bitpush terminal, Ethereum has risen by 50.02% year-to-date (YTD), but Bitcoin has soared by 72.30%, and is expected to achieve its best quarterly performance in two years.

Ethereum’s correlation with Bitcoin has been increasing since it began trading nearly eight years ago. According to data from IntoTheBlock (ITB), Bitcoin’s 100-day correlation with Ethereum averaged 35% in 2016 and 2017 (where 100% indicates perfect correlation and -100% indicates perfect inverse correlation), a figure that jumped to 66% in 2018, 77% in 2019, and then reached over 87% in 2022. At press time, Ethereum’s price correlation with Bitcoin currently stands at 0.98, which is at a monthly high.

Ethereum outperforms Bitcoin in bull markets and underperforms in bear markets

Ethereum has outperformed Bitcoin over the past few years, especially during the Covid-19 crypto bull run of 2020 and 2021. Data published by @DanniiAshmore shows that ETH/BTC has risen 2.53 times since April 2020.

Therefore, like most altcoins, Ethereum tends to outperform Bitcoin in bull markets and underperform in bear markets. This is because during periods of low market sentiment, investors are more willing to bet on more "stable" investments rather than risk buying altcoins. After the implosion of projects such as FTX , Celsius , and LUNA, the crypto market may reduce altcoin positions due to too much fear and uncertainty.

Banking crisis strengthens BTC narrative

Earlier this month, after three U.S. banks collapsed and the Fed launched an emergency funding program to curb a banking panic, market expectations for a shift in Fed policy grew. Investors speculated that central banks, led by the Fed, would abandon aggressive rate hikes in response to recessionary signals, boosting U.S. stocks and crypto markets.

Data from Bitpush Terminal shows that BTC has been outperforming ETH since the Silicon Valley Bank incident broke out on March 8, indicating that BTC is still the preferred safe-haven asset for investors and that Bitcoin is a better diversified investment tool compared to other tokens.

As the largest altcoin, Ethereum has a completely different value proposition from Bitcoin. Bitcoin is a purely decentralized currency system that doubles as a store of value. Ethereum has more and more use cases besides being a currency: digital collectibles, prediction markets, metaverse communities, and blockchain games. Many members of the crypto community believe that Ethereum's market value will eventually surpass Bitcoin.

At press time, the market cap difference between BTC and ETH is quite large, with ETH’s market cap sitting at $214,376,317,596 and BTC more than double that, currently sitting at around $539,661,509,934.

Will Ethereum turn around?

Crypto trader KALEO (@CryptoKaleo) currently holds a bearish stance on ETH/BTC, believing that ETH/BTC will continue to fall in the coming days. KALEO analysis shows that BTC rebounded from the low of $19,528 on March 10 to the $22,000 level and hit the 1.6 Fibonacci retracement level in March 2022, while ETH failed to reach a similar peak. Next, $32,000 to $33,000 is an important level that Bitcoin needs to break through to continue to rise.

The “Exchange Reserves” metric measures the total amount of tokens currently stored in all centralized exchange wallets . One of the main reasons investors transfer their holdings to exchanges is for the purpose of selling, so an increase in this metric may mean that investors are reducing their holdings.

CryptoQua nt analysts noted that investors have been depositing Bitcoin into exchanges, but this declined when it fell below $20,000 earlier this month , suggesting some new buying near the lows. Much like Bitcoin, Ethereum exchange reserves plummeted near local lows but have also trended upward during the recent rally.

However, the speed of inflows is different. BTC's inflows are fast, and the total amount of BTC flowing into the trading platform during this wave of gains exceeds the amount of outflows at the trough, while ETH's inflows are relatively slow, far from the level before the recent lows. Analysts believe that this may indicate that Ethereum has not yet faced the same intensity of selling pressure as Bitcoin, and ETH is expected to continue to rise strongly even after the BTC rally ends.

In addition, the Ethereum Shapella hard fork is expected to take effect on the mainnet in April. This change will allow validators who previously deposited 32 ETH to partially or fully unlock, and the potential influx of 1.76 million ETH into the market may be unfavorable to the token price. However, from an optimistic point of view, there is a cap on the number of validators that can be unstaked daily, and users can also choose the revenue mechanism between decentralized financial ( DeFi ) applications such as Lido and Rocket Pool , so the Shapella upgrade will not necessarily cause selling pressure on the market.