Ethereum’s native token Ether (ETH) shows the potential for major gains against Bitcoin (BTC) with the ETH/BTC pair approaching yearly highs.
Ether paints a classic bullish reversal pattern
Bullish signals come from a classic technical pattern called an inverse head and shoulders, which develops when price forms three troughs below a common support level known as a neckline.. The central channel, or head, is deeper than the other two, called shoulders.
An inverse head and shoulders setup resolves after price breaks above the neckline while accompanying an increase in trading volume. As a technical analysis rule, your profit target comes at a length equal to the maximum distance between the lowest point of the head and the neckline.
So far, Ether has established a similar pattern and is now expecting a break above the neckline, as illustrated in the chart below.
If the price of ETH decisively rises above the neckline, then the Ethereum token’s 2022 upside target will be around 0.136 BTC, roughly 60% higher than current price levels.
Enthusiasm for Merge Update Boosts ETH/BTC Pair
The breakout moment could come before Ethereum’s migration from proof-of-work (PoW) to proof-of-stake (PoS).
While proponents tout Merge as a less energy-intensive alternative to PoW, the upgrade could also reduce annual Ether issuance by 4.2%.
Furthermore, the demand for ETH as a means to receive potential forked tokens after the Merge has seen the ETH/BTC pair surge more than 55% since the announcement of the upgrade release on July 14.
Matt Hougan, Chief Investment Officer at Bitwise Asset Management, believes that switching from Ether to a protocol that consumes less energy could increase its appeal among institutional investors. In turn, it could ensure that Ether overtakes Bitcoin by market cap.
“It is very possible that we will see Ethereum overtake Bitcoin at some point in the future,” Hougan told Forbes, adding:
“It pursues, in my opinion, a larger addressable market.”
For now, Ethereum’s $200 billion market capitalization is below Bitcoin’s $369 billion.
Sell on the news of Merge?
On the other hand, Ether has been trading near a resistance area with a long history of exhausting price rallies against Bitcoin, points out the Riteable analyst. Also, the ongoing uptrend of the ETH/BTC pair accompanies declining volumes and relative strength index (RSI) readings.
In other words, a bearish divergence which could mean that the ETH/BTC price rally could be about to run out, resulting in a post-merge correction.
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