Ether Beats Bitcoin With 45% Weekly Gain. Why It May Not Last.

Make no mistake, digital assets are down in the dumps. The three months to the end of June marked the worst quarter for Bitcoin since 2011—a year in which it crossed the $1 mark for the first time—while for Ether it represented the worst quarter ever.

The market capitalization of cryptocurrencies has collapsed to $1 trillion from nearly $3 trillion eight months ago, with Bitcoin and Ether both trading at less than one-third of the record highs they reached in November 2021.

Yet the past week has seen a reversal of fortune. 

Bitcoin was trading around $22,000 Tuesday, well above its bottom below $18,000 reached in the trough of a selloff in mid-June, and at its highest level since the crypto rout of a month ago brought prices crashing down from $30,000. Ether was changing hands at $1,550, with the token underpinning the Ethereum blockchain network having left its recent bottom below $1,000 far behind.

But the rallies for the largest and second-largest cryptos have not been equal. Bitcoin has climbed 11% from a week ago, while Ether is up 45% over the same period.

Ether’s outperformance seems to be rooted, at least in part, in a resurgence of optimism surrounding “The Merge”—which will see the process for mining the token change from an energy-intensive process called proof-of-work to proof-of-stake.

A major criticism of cryptos such as Bitcoin and Ether is that they aren’t climate-friendly, requiring significant amounts of energy to “mine” tokens using intensive computations. The mining process is what validates the decentralized ledger of transactions that underpins the blockchain. Proof-of-stake instead requires users to set aside, or stake, tokens to validate the network.

The date for The Merge has been pushed back multiple times, but traders seem to be taking hold of an update from Tim Beiko of the Ethereum Foundation, who said via Twitter on July 14 that Sep. 19 was the provisional date for the update.

Martin Hiesboeck, the head of crypto research at trading platform Uphold, poured some cold water on the optimism following Beiko’s message, noting that a date for The Merge has been announced six times before—and has been delayed each time.

“While the price action of Ethereum certainly gives hope for the overall market to maybe turn a corner in the next few weeks, the sudden jump is mostly motivated by hype and perhaps a lack of understanding,” Hiesboeck said.

From a technical perspective, too, Ether’s stunning outperformance of Bitcoin may not have strong legs.

“The bounce may be fleeting with short-term overbought conditions having returned,” Katie Stockton, managing partner at technical research firm Fairlead Strategies, wrote in a note on Monday. “The downtrend remains intact.”

“Ether needs more significant improvement in intermediate-term momentum to convince us a lasting turnaround is under way,” Stockton added. “From a long-term perspective, a bear market cycle has a hold with negative momentum.”

The technical outlook isn’t much better for Bitcoin, either, according to Stockton.

After rallying over the weekend, Bitcoin isn’t back into a “consolidation phase,” according to Fairlead Strategies, with prices struggling to break the 50-day moving average near $23,200 and showing few signs of improving over the intermediate term.

“We remain intermediate-term bearish,” Stockton said. “Negative long-term momentum and the downward sloping 200-day moving average increase risk beyond the near term, so we would not chase this rally.”

Write to Jack Denton at jack.dentondowjones.com