The past several weeks had seen the largest cryptocurrency in the world managing to continue an impulsive rally, reaching the 2019 high around $13,850 a few days ago. The same can’t be said about Ether (ETH), which continues to be an underperformer, for several reasons that will be discussed today.
PayPal announcing that it will provide Bitcoin-related services (buying, selling, and storage) was a major tailwind for BTC, but still, Ether did not even manage to reach the September 1st high, located around $480.
Buying momentum weak – major risks to the downside?
Since September 5th, Ether had a relatively choppy activity, with no clear directional bias. The price had been fluctuating between $320 and $390, but even though a few days ago a breakout on the upside occurred, buyers are still reluctant to join the trade on mass.
Considering ETH and BTC are generally closely correlated, the current performance should raise concerns, especially if the market will start to retrace lower. As one of the underperformers, ETH is subject to massive drops and that would be a major hit for buyers that are now waiting for stronger gains.
DeFi bubble burst – keeping ETH subdued?
Although there could be many reasons behind the lack of activity in ETH, one of them is linked to the DeFi market. As we’ve talked about in a previous article, ETH fees skyrocketed as DeFi tokens surged to new all-time highs.
However, the DeFi bubble burst, and tokens like ChainLink are now around 50% below their highs, some posting even larger losses. Since most of these tokens are operating on the Ethereum blockchain, such a performance from ETH should not be a surprise.
A few months ago, when DeFi tokens were skyrocketing, Ether was outperforming most of its major peers and now that the opposite is happening, it is time for tokens like Bitcoin to post solid gains.
Traders and investors should get accustomed to this new approach, as market participants no longer invest in a broad range of tokens, but accumulate investors in names that are outperforming. This leads to overshooting markets and impulsive corrections, perpetuating the high volatility.
It would be interesting to see if Ether will finally gain more steam and reach the September highs. Keep in mind that Bitcoin had been trading impulsively higher for 4 weeks in a row and a corrective move could occur at any point. ETH is one of the tokens vulnerable in the face of renewed pressure.