Ethereum bull trap? ETH price signals breakdown versus Bitcoin

A recent run-up in Ether (ETH) prices against its top rival Bitcoin (BTC) appears to be at the risk of exhaustion even as analysts see the second-largest cryptocurrency as stronger among the two.

In retrospect, the ETH/BTC exchange rate rose by up to 40.19% after bottoming out at 0.0553 BTC on May 23. The powerful rebound move reflected a spike in the capital flow from spot ETH to spot BTC market. That also led analysts at Delphi Digital — an independent market research firm — to highlight Ethereum’s “formidable strength” in the Bitcoin-quoted markets. They wrote:

“If you look at the YTD ETH/BTC chart in isolation, you probably wouldn’t guess fear in the crypto market is the highest it’s been in a year.”

But a closer look into the ETH/BTC chart returned evidence that bullish traders might be heading into a bull trap.

Bearish wedge

ETH/BTC formed a pattern that began wide at the bottom and contracted as the price moved higher. As a result, the trading range got narrowed. Meanwhile, the volumes declined as the prices rose and the contracting pattern evolved.

ETH price rise inside a bearish reversal pattern as trading volumes decline. Source: TradingView

Classic chartists refer to the structure as a Rising Wedge. They interpret it as a traditional bearish reversal pattern, primarily because of the loss of the upside momentum on each successive high formation.

Rising Wedges mature as the asset reaches the level where its two trendlines converge. Nevertheless, bearish confirmations do not come until the price breaks below the Wedge support in a convincing fashion. But if it does, the asset risks crashing by as much as the maximum distance between the Wedge’s upper and lower trendline.

Therefore, the ETH/BTC rising wedge indicator suggests a decline towards 0.0648 BTC on a negative breakout attempt from the pattern’s apex — the point at which the trendlines converge. Also, the 0.0648 BTC level has served as support thought the May 2021 session.

January 2018…

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