First Mover: Ether Eyed as Value Play With Bitcoin Pressing $20K

As prices consolidate below $20K, traders cue off macroeconomic factors - like Biden remark that $908B stimulus would be "down payment."

Dec 3, 2020 at 1:43 p.m. UTC
Updated Sep 14, 2021 at 10:37 a.m. UTC

Bitcoin was heading back toward the all-time high price of $19,920 notched earlier this week. 

"So far, prices remain constrained, either with sellers unwilling to part with their coins at any lower price or buyers unwilling to take further bets on a rally," Matt Blom, head of sales and trading at the cryptocurrency-focused financial firm Diginex, wrote Thursday. 

In traditional markets, European shares slid and U.S. stock futures pointed to a lower open after coronavirus-related fatalities in the country surged Wednesday to at least 2,760, the deadliest day since the pandemic began. Gold strengthened 0.4% to $1,838 an ounce. 

Market moves

Those new to crypto, such as the institutional investors recently buying into bitcoin’s “digital gold” narrative, might now be looking around for the next big thing.

With the long-anticipated arrival of the Ethereum 2.0 upgrade on Dec. 1, that could be the network’s native token, ether. But analysts say ether should be judged on its own merits and not as a bitcoin replacement.

“I’ve always thought this digital asset space is huge – and it’s not just bitcoin – because there are going to be different applications for different things,” Raoul Pal, CEO and co-founder of financial media group Real Vision, said in Real Vision’s documentary “Ethereum – An Investigation,” which was released on Nov. 30. “I think of the two [bitcoin and ether] as having a very nice combined asset allocation.”

Chart shows weakening but still strong correlation between prices for bitcoin and ether.

For Pal, an early bitcoin investor, the rationale seems even more plausible these days: As bitcoin’s price hits a new all-time high, the number one cryptocurrency by market capitalization is now more expensive and thus potentially a riskier bet for new investors. 

It can be expected investors are looking for a new opportunity in crypto at affordable prices. Given that ether is trading roughly 59% below its all-time high of $1,432.88, it is tempting to believe there’s a bargain to be had. What’s more, the Ethereum 2.0 upgrade to increase the network’s scalability, security and energy efficiency has generated a lot of hype.

However, at least for now, analysts and traders who spoke with CoinDesk don’t think ether will replace the FOMO over bitcoin.

“For institutional investors, they are buying BTC for the digital gold narrative,” Ryan Watkins, senior research analyst at Messari told CoinDesk. “ETH just isn’t in that conversation yet.”

- Muyao Shen

Bitcoin watch

On the left: Bitcoin prices charted against the U.S. dollar index. On the right: Bitcoin daily candle price chart showing recent trading range.

Bitcoin is locked in the range of $18,000 to $20,000 since Tuesday, having nearly doubled to a record price of $19,920 in the past eight weeks.

"Large sell orders near $20,000 and consistent dip demand have led to price consolidation," according to Patrick Heusser, a senior cryptocurrency trader at Zurich-based Crypto Broker AG. “If either side breaks I believe we would see fireworks, especially to the upside." 

Macro factors point to a continued bull run. The U.S. 10-year breakeven inflation rate, which represents how the market foresees long-term inflation, rose to 1.85% on Wednesday. That’s the highest level since May 2019. The Dollar Index, which tracks the greenback’s value against major currencies, is seen near 91.00 at press time, a level last seen in April 2018, according to TradingView.

The USD drop and rising inflation expectations typically force both institutions and retail investors to buy traditional store-of-value assets such as gold. This year, institutions have increasingly poured money into bitcoin, reinforcing its use as an inflation hedge. The trend may well continue, with Morgan Stanley predicting another 10% decline in the dollar over the next 12 months.

A breakout, if confirmed, would shift the focus to $20,300, where sizable open interest appears to be building in the options market. Alternatively, acceptance under $18,000 would expose the Nov. 27 low of $16,218.

- Omkar Godbole

Token watch

USD Coin (USDC): Visa may support a USDC credit card after adding Circle to "fast track" program.

XRP (XRP): Brad Garlinghouse, CEO of Ripple, provider of XRP-based payment network, walks back threat to leave U.S.  

Ampleforth (AMPL): Supply-rebalancing stablecoin launches on Tron, Pokadot and NEAR blockchains. 

What's hot

U.S. lawmakers introduce bill that would require stablecoin issuers to obtain bank charters (CoinDesk)

Grayscale Ethereum Trust announces 9-for-1 stock split, a move that could increase perceived affordability of the shares (CoinDesk) (Editor's Note: Grayscale is a unit of Digital Currency Group, the owner of CoinDesk.) 

Four charts showing why bitcoin is an alternative risk asset, according to Damanick Dantes (CoinDesk Opinion

Analogs

The latest on the economy and traditional finance

U.S. President-elect Joe Biden calls $908B stimulus proposal "at best only a down payment" (Bloomberg

Prospect for Federal Reserve bond purchases helps keep lid on 10-year U.S. Treasury yields (WSJ

Dollar skids to fresh 2.5-year low as U.S. stimulus talks revive (Reuters

Congress sets stage for exiling Chinese stocks from U.S. over audit dispute (WSJ

CFOs feel confident Biden won't be able to raise the corporate tax rate to 28%, according to CNBC survey (CNBC

Federal Reserve's Boston branch says regional business executives estimate daytime office occupancy rates at about 20% (Reuters

U.S. private payrolls miss expectations in November as coronavirus infections spread, according to ADP, with growth of 307K versus an estimated 410K and 404K the prior month (Reuters)  

Judy Shelton, longtime proponent of return to gold standard, appears to lack sufficient support to advance in nomination as Federal Reserve governor (WSJ)  

Gasoline-powered cars may be a thing of the past in Japan as island nation plans to ban them outright by 2030s (Nikkei Asia Review)

U.S. private equity firm Blackstone Group has purchased over $1 billion of real estate in Japanese urban areas (Nikkei Asia Review)

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