Ethereum and Bitcoin are leaders in the crypto market, proving that innovation stems from the need for the financial sector to improve. While Ethereum made smart contracts approachable and contributed to the development of the DeFi ecosystem, Bitcoin expanded globally and became a potential legal tender for the future.
The relationship between these two massive cryptocurrencies is represented in trading through the ETH/BTC pair, which has become stabler over the years due to increasing stability. Although both coins can be prone to volatility separately, their long-term commitment to the market straightened their trading relationship.
Expert users also analyze the pair to identify important aspects of market sentiment and make better decisions based on different opportunities. The fluctuations of Ethereum’s value in relation to Bitcoin can mirror broader market trends.
Let’s learn more about this pair to understand how to trade it.
Table of Contents
About Bitcoin
As the first cryptocurrency created and deployed on the market in 2009, Bitcoin gained experience among users and received increasing interest even from institutional bodies. The cryptocurrency laid the groundwork for upcoming projects, starting the trend of altcoins, but remained a leader as an investment and trading tool.
With a good reputation and an expansion in the industry, Bitcoin continued to be relevant through the first BTC ETFs, which allow users to leverage the currency’s price without owning it. BTC spots and options are also helpful for those who want to diversify their portfolios and have the experience to withstand changing trends.
About Ethereum
Ethereum is the second cryptocurrency by market capitalization, and this is remarkable considering the investment in technology. Thanks to the Ethereum developing ecosystem, smart contracts, decentralized applications, and non-fungible tokens evolved.
What makes Ethereum special is its commitment to improvement, which is why it’s going through the road development process. The updates are solving (and will continue to do so) the biggest ETH challenges, including sustainability, scalability, and safety.
On ETH/BTC
Ethereum and Bitcoin are similar from several perspectives, especially since the creator of Ethereum was inspired by BTC’s white paper. Both projects focus on decentralization, market-determined value, and blockchain technology.
There’s also an interesting price correlation between ETH and BTC, as it can happen for one investment to follow the other. While all assets correlate to Bitcoin, most altcoins follow Ethereum, considering they’re based on the underlying blockchain technology. This is why traders invested in the ETH/BTC relationship are taking advantage of the pair.
On trading the pair
General rules apply to trading this pair in terms of strategies. The pair showcases when Ethereum outperforms Bitcoin due to an increasing ETH/BTC, but the pair’s decline signifies Bitcoin’s dominance. Trading the pair allows people to speculate on Ethereum’s price appreciation, while traders interested in short-selling try to anticipate Bitcoin’s relative strength.
Therefore, there’s no right or wrong way to trade the pair, as it depends on a series of factors. For example, some traders trade on rising markets by following trends, buying the dip, or approaching relative index strategies. On the other hand, people trade on falling markets through short-selling, retaining safe-haven assets, or leveraging buying opportunities.
At the same time, some traders rely more on technical analysis than fundamental analysis, valuing factors like on-balance volume (OBV) or the moving average convergence divergence (MACD) more than historical and public data.
On using the pair for analysis
Other traders take advantage of the pair’s path in the market to get a thorough understanding of its movement. That’s because the ratio offers insight into:
- The market preference between ETH and BTC;
- The opportunity of rebalancing portfolios for time traders;
- The early signs of altcoin strengths and weaknesses;
- The capital rotation between BTC and ETH;
- Their usage for gauging risks by institutions;
Some basic interpretation of the pair’s movement can be tracked by the following:
- High ETH/BTC means Ethereum dominance:
- Low ETH/BTC shows Bitcoin predominance;
- A stable ratio means both assets are moving at the same rate;
- Sudden price shifts predict a possible change in market sentiment;
- Long-term trends give insight into the ecosystem dominance;
That’s why using the ratio to analyze the market includes:
- Comparing the ratio with other crypto pairs;
- Tracking the reaction to major news or ETH updates;
- Planning for multi-asset portfolio shifts;
Portfolio diversification is key
Although the ETH/BTC pair is an efficient trade and can bring considerable returns and experience, traders must remember to diversify their portfolios and be prepared to relocate when necessary. This can be done either by monitoring the news and predicting important market shifts or by using artificial intelligence to support automated tasks.
AI trading tools can be used for various reasons, from employing quantitative trading and algorithmic trading to helping with automated trading. Some of the most efficient technologies include:
- AI as portfolio managers. These tools can create and monitor portfolios by removing and adding assets based on market movements;
- AI as trading robots. The software makes decisions based on predetermined rules so users can program them;
- AI as signals. These pre-programmed tools automatically send alerts when the assets traders follow meet specific price requirements;
Pros and cons of AI in trading
AI in trading can bring considerable benefits for users, such as the following:
- It can reduce research time and improve accuracy by providing reports from historical financial data;
- It identifies predicting patterns efficiently through natural language processing (NLP;
- It employs better risk management by helping avoid emotional trading;
On the other hand, AI presents some of the following risks in trading:
- It relies too much on historical data, which shows more volatility than now;
- It is prone to large-scale errors due to software vulnerabilities;
- It struggles with cybersecurity concerns due to data breaches;
Final considerations
Trading in the crypto market offers plenty of opportunities to increase rewards and gain experience. That’s why many traders experiment with the ETH/BTC pair, as two of the strongest cryptocurrencies on the market can determine changes in the ecosystem and influence each other. Trading on this pair can be done in different ways depending on the user’s risk level and commitment to the market.
