The recent performance divergence between Bitcoin and Ethereum has sparked considerable interest and analysis within the cryptocurrency community. As highlighted by Glassnode, an analytic firm, over the course of the 2023-2023 cycle, Ethereum has notably underperformed in comparison to Bitcoin. It exhibited weaker price dynamics and struggled to match the capital rotation trends seen in previous cycles. This divergence has led to a range of observations and interpretations regarding the underlying market dynamics.
Bitcoin’s fourth halving event, a well-publicized occurrence in the cryptocurrency space, followed historical patterns by initially triggering a sell-off of around 11%. However, subsequent analysis revealed a familiar trend of choppy sideways movement post-halving, with slight downward pressure persisting over a 60-day period. Despite this, Bitcoin’s overall resilience remained evident, with corrections notably shallower than in previous cycles.
Interestingly, comparisons between the current cycle and the 2015-2017 bull market highlight similarities in drawdown structure, suggesting potential parallels in market behavior. The emergence of US ETFs further diversified demand in spot markets, contributing to Bitcoin’s robust performance relative to Ethereum.
Conversely, Ethereum experienced deeper drawdowns, with its lowest point of the cycle reaching a significant -44%, more than double that of Bitcoin’s -21%. This relative weakness in performance has been a consistent theme over the past two years, reflected in the subdued ETH/BTC ratio.
Analyzing investor positioning through metrics like Net Unrealized Profit/Loss (NUPL) reveals a widening gap between Bitcoin and Ethereum holders. It was observed that Bitcoin investors experienced a greater expansion in unrealized profits, particularly leading up to the euphoric phase. This discrepancy has been exacerbated by the spotlight on Bitcoin with the approval of spot ETFs, while Ethereum awaits potential approval of its own ETFs by the SEC.
Short-term holders, reflecting recent interest from new investors, have maintained their positions in both the Bitcoin and Ethereum markets, demonstrating resilience when the markets have corrected. Despite this, Ethereum has struggled to surpass its ATH from 2021, which has limited its appeal for new investments, resulting in a momentum shortfall compared to Bitcoin.
Long-term Bitcoin holders have frequently engaged in selling their stakes for profit, especially during times when the cryptocurrency reaches ATH prices. On the other hand, those holding Ethereum for the long term tend to show greater patience, possibly holding out for more favorable conditions to realize their profits. This difference illustrates distinct strategies between the two groups, with Ethereum holders often waiting for potentially higher gains. This divergence in behavior underscores the differing sentiments surrounding the two assets.
Despite ongoing HODLing behavior among Ethereum investors, capital inflows into Ethereum continue to lag behind Bitcoin, a trend observed in previous cycles. Monitoring the rotation of capital between the two assets provides insights into market dynamics, with short-term holder metrics peaking around ATHs. In contrast, long-term holder metrics reflect buyers from previous cycles contributing to sell-side pressure.
