Ethereum (ETH) has been trending downward against Bitcoin (BTC) in recent days, which has contributed to weakness across the cryptocurrency market. But relief could be on the horizon in the months ahead.
The bad news is that Ethereum is currently facing the lowest point of its price against Bitcoin in the last 1,000 days. That’s a massive blow to everyone invested in Ethereum, especially as multiple upgrades have taken place over the last several years. While Ethereum ETFs have also launched, they have failed to provide strong momentum.
On the bright side, all of the market weakness could be simply due to seasonality — a factor that will soon be working in favor of bulls. In past years, altcoin markets have surged and fallen depending on the season. A prime example is Chainlink (LINK), which generally surges against Bitcoin in the second half of the year while losing value during the first half of the year. It lost more than 60% of its value during the first half of the year in 2022, 2023 and 2024 — and surged more than 120% in the second half of the year in 2022 and 2023.
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Chinese liquidity injections are another phenomenon that correlate with the altcoin market. Chinese liquidity expands and slows down on a six-month cycle. Momentum grows during the last part of the year (and in January and February) but slows during the other months. The most recent expansion began in September 2023 and peaked in February. That correlated with the most recent peak in altcoin markets.
Key Chainlink metrics. Source: TokenTerminal
Currently, global liquidity is poor. However, there is a high likelihood of the situation improving as China uses quantitative easing (QE) to expand its own economy. The Federal Reserve has also started firing up QE to boost the United States’ economy. The Fed will begin cutting rates in September, which will create a stronger environment for altcoins to do well.
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Altcoins are currently showing a beautiful retest against old price levels, and it indicates that there is nothing wrong with the current thesis of the markets. It’s still very comparable to any of these stages that the markets have witnessed in previous cycles. If the markets are brought back to the last stage of 2020, they will be in the same climate, where altcoins are heavily correcting downwards while Bitcoin holds itself steady or continues its momentum upwards.
Fees earned by layer-1 blockchains from 2023 to 2024. Source: TokenTerminal
In that regard, the market capitalization of the altcoin market is still down 50% from its all-time high of 2021. There is still a lot of momentum ahead, and if you compare the action of the overall altcoin market against Bitcoin, you might argue that altcoins have a big breakout on the horizon. They’re showing a massive bullish divergence and a strong higher timeframe support level on which their entire market capitalization rests.
Let’s face reality: ultimately, people want to generate more Bitcoin through those altcoins, so it makes sense that they’d want to invest in them during this phase of the market.
From a technical point of view, the markets are eager for a reversal upwards. Suppose you add seasonality to this, and you’ll dive into specific market segments with their current valuations. In that case, you’d assess that altcoins are heavily undervalued. An example is AAVE (AAVE) with its market capitalization of around $1.8 billion (as of Sept. 3) and approximately $12 billion in time value locked in its ecosystem. That is a tremendously low valuation for a project that is building its ecosystem and earning revenue.
The thesis is quite clear: the altcoin surge is ready to happen, and therefore, you should look at potential narratives outside the box, as the most apparent thing rarely happens in the markets.
Michaël van de Poppe is a guest columnist for Cointelegraph, a Netherlands-based trader and the founder of MN Trading. He holds a degree in economics from the University of Amsterdam.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.