The prolonged slump of Ethereum, which has persisted for 40 months, appears unlikely to conclude with a scenario characterized by a precipitous decline in value against Bitcoin. Recent market dynamics illustrate a notable increase in the correlation between the ETH/BTC trading pair and the U.S. Dollar Index (DXY), which has decreased by 5.35% since reaching its peak in 2024.

As of August 26, the 30-day average correlation coefficient between ETH/BTC and the DXY stood at 0.78, a significant rise from a mere 0.10 at the beginning of the year. This developing trend suggests that investors are increasingly pivoting away from Ether and favoring Bitcoin, either by reallocating current holdings or prioritizing Bitcoin for new investments, particularly in light of the dollar’s depreciation against several major currencies.

Several underlying factors have contributed to the capital rotation from Ether to Bitcoin. A pivotal moment occurred with the introduction of Bitcoin-focused spot exchange-traded funds (ETFs) in the United States back in January 2024, which have thus far attracted inflows totaling approximately $17.86 billion, as reported by Farisde Investors. Conversely, Ethereum’s own ETF launches in late July elicited a lukewarm reaction from the market, leading to outflows amounting to $465 million. The situation has been further exacerbated by the Grayscale Ethereum Trust (ETHE), which has seen an alarming outflow of $2.53 billion, dampening investor sentiment towards Ethereum in contrast to Bitcoin.

Historically, it appears that investors may continue to allocate a larger share of their assets towards Bitcoin over Ether, particularly following the anticipated easing of interest rates in September. The U.S. Dollar Index recently fell below a critical multi-month support level on August 23, prompted by Federal Reserve Chair Jerome Powell’s exceedingly dovish assessment delivered at the Jackson Hole symposium. Analyst Elja Boom has suggested that this decline may signal a deepening “freefall” for the dollar, reinforcing his outlook with the identification of a Bearish Gartley pattern. This harmonic pattern is often employed in technical analysis to pinpoint potential reversal zones within the market.

According to Boom, the dollar’s downtrend may persist, potentially reaching targets between the 94-96 range, a scenario he believes is overwhelmingly bullish for Bitcoin and the broader cryptocurrency market.

In addition, the stronger correlation with the DXY could result in a decline of the ETH/BTC pair in September, a presumption bolstered by the emergence of a V-top pattern within shorter timeframe charts. The V-top pattern is defined by a steep ascent followed by an equally pronounced descent, resulting in a characteristic V shape on the chart. In this instance, ETH/BTC exhibited a rapid increase in late July, succeeded by a sharp downturn commencing early August.

The bearish signal is confirmed upon a decisive breach below the support level at the base of the V pattern, which is estimated to be around the 0.0427 BTC mark. Should ETH/BTC decisively breach this support, it may plummet to approximately 0.0396 BTC by September, reflecting a reduction of about 10% from current price levels, which would mark its lowest status since early April 2021. This target is ascertained by gauging the height of the V-top and extending that measure downward from the breakdown point. Conversely, a rebound from the 0.0427 support level could negate the bearish outlook, facilitating a corrective rally towards ETH/BTC’s 50-4H EMA, forecasted at approximately 0.0469 BTC by September.

In conclusion, while Ethereum’s current market trajectory appears bleak vis-à-vis Bitcoin, the evolving correlations and patterns warrant careful monitoring. It is essential for investors to conduct thorough analyses and consider potential risks before making any financial decisions, as this article does not constitute investment advice or recommendations.

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