Crypto Markets Analysis: Bitcoin and Ether’s Divergent 2023 Paths May Present Opportunity for Crypto Investors

The two largest cryptocurrencies by market capitalizations' net position change on exchanges have gone in opposite directions.

AccessTimeIconFeb 2, 2023 at 9:49 p.m. UTC
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Bitcoin and ether have been taking different paths so far in 2023, which could present a buying opportunity for crypto investors.

The two largest cryptocurrencies’ net position change on exchanges has veered away from one another after correlating closely throughout 2022. An asset’s net position on exchanges is the difference between deposits and withdrawals.

BTC’s net position on exchanges reflects declining supply, while the increase in ETH’s net position indicates a larger stockpile on exchanges.

Bitcoin Exchange Net Position Change (Glassnode)
Bitcoin Exchange Net Position Change (Glassnode)

An asset’s exchange net position is noteworthy because increases in value often precede the asset being sold, while decreases indicate that investors are removing the asset from exchanges to place it in cold storage. Investors may be able to anticipate the resulting price changes.

Ether Exchange Net Position Change (Glassnode)
Ether Exchange Net Position Change (Glassnode)

The shift in net position for bitcoin and ether occurred at approximately the same time (Jan 19). Investors may be treating BTC and ETH as substitutes for each other, or possibly indicating they prefer bitcoin to ether.

The ETH/BTC currency pair is down 3% year to date, after being off as much as 8%. Ether has underperformed bitcoin, despite its supply contracting by 6,700 ETH since September. With no change in ETH’s overall utility and its traditionally high correlation to BTC, investors may find it odd that the asset has fallen relative to bitcoin.

ETH’s correlation coefficient relative to BTC has fallen 18% since Jan. 23, without a clear explanation why. A return to correlation norms in conjunction with a continued rise of BTC prices would imply an accelerated move higher for ETH.

Future flows of ether onto and/or off exchanges may show whether investors believe that the difference in performance represents an opportunity. Ether's price is still up 39% year to date, but trails BTC’s 43% move higher. Should investors begin to remove ETH from exchanges, the trend could signal the asset’s move higher.

Ether also appeared on a Thursday morning screen of approximately 90 cryptocurrencies that identify assets whose price has surpassed the upper bound of its Bollinger Bands.

The Bollinger Bands indicator measures an asset’s 20-day moving average, while plotting “bands” that sit two standard deviations above and below the average. An asset breaching the upper band indicates increased volatility along with a price move outside normal expectations.

The move higher comes in conjunction with higher-than-average volume, which bolsters the idea that investors may be perceiving a disconnect in value and looking to take advantage of it.


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Glenn Williams

Glenn C Williams Jr, CMT is a Crypto Markets Analyst with an initial background in traditional finance. His experience includes research and analysis of individual cryptocurrencies, defi protocols, and crypto-based funds. He owns BTC, ETH, UNI, DOT, MATIC, and AVAX

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