There is lots of controversy surrounding cryptocurrencies. In a May 11, 2023, Barchart article, Bitcoin – Stuck in Neutral, I wrote, “Bitcoin and cryptos are stuck in neutral in mid-May 2023….the odds favor higher prices.” On that day, Bitcoin was at the $27,159.55 level, with Ethereum on either side of $1,800 per token.
After a dip to lower levels that found bottoms on June 15, the top cryptos took off on the upside, but Bitcoin has outperformed Ethereum.
On June 30, Bitcoin’s market cap was 50%, and Ethereum’s was 19% of the overall cryptocurrency asset class with over 26,000 other tokens. Bitcoin has been dominant, and while Ethereum has appreciated since mid-June, Bitcoin has left the second-leading crypto in the dust.
Ethereum rallies
Ethereum plunged 81.8% from the November 2021 $4,865.426 record peak to the June 2020 $883.159 low.
The chart highlights the ugly correction that found a bottom in late 2022. Since then, Ethereum has made higher lows and higher highs and was trading at the $1,850 per token level on Friday, June 30. Ethereum moved 109.5% higher. While Ethereum reached a $2,137.77 peak in mid-April, the price has consolidated over the past weeks, remaining below the $2,000 level, which has become technical resistance.
Bitcoin moves above the technical resistance
Bitcoin followed a similar path, falling 77.5% from the November 2021 all-time $68,906.48 high to $15,516.53 in November 2022. Bitcoin fell less than Ethereum during the correction.
The chart shows at $30,077.44 on June 30; Bitcoin was 93.8% higher than the November 2022 bottom. Meanwhile, $30,000 had been a technical resistance level for the leading cryptocurrency. Bitcoin broke above resistance in June and was consolidating near the high at the end of June.
Mounting regulatory pressures favor Ethereum
El Salvador adopted Bitcoin as its national currency in September 2021 to cut the country’s reliance on the U.S. dollar, create new jobs, and attract foreign investment.
In a recent debate, Max Keiser, advisor to the President of El Salvador and a prominent Bitcoin supporter, stated that mounting regulatory pressure on XPR (formerly Ripple) and Ethereum will lead to the demise of XPR, Ethereum, and other cryptocurrencies, except for Bitcoin, which he called “untouchable.”
Source: Twitter
John E. Denton, a lawyer representing XPR holders and crypto interests, challenged Max Keiser’s forecast. However, SEC Chairman Gary Gensler has said that “most crypto tokens have the hallmarks of securities,” which will likely lead to significant regulatory oversight. The recent lawsuits against Binance and Coinbase could be the SEC’s first step to reign in the cryptocurrency market.
Proof of stake versus proof of work
Bitcoin and Ethereum have experienced the same boom-and-bust price action since the November 2021 high. Recently, Bitcoin’s move above the $30,000 technical resistance level has made the leading crypto more attractive than Ethereum, as the trend in markets is always your best friend.
In 2022, Ethereum officially switched to a Proof-of-Stake (PoS) consensus mechanism as a more secure and energy-efficient way to validate transactions and add new blocks to the blockchain. PoS protocols select validators in proportion to their quantity of holdings in the associated cryptocurrency, avoiding computation costs involved in the Proof-of-Work (PoW) protocol.
Bitcoin remains a PoW protocol using mining to reward users for helping oversee activity on an underlying blockchain network.
While PoS is energy efficient, reflecting dominant participants, PoW is more secure, while slower and requires more energy consumption. Based on Bitcoin’s most recent price move above the $30,000 resistance level, the market has not voted in favor of PoS and is willing to accept Bitcoin’s PoW protocol. However, since the leading cryptos tend to move together, it may only be a matter of time before Bitcoin’s price action pulls Ethereum over the critical $2,000 per token level.
As of June 30, the cryptocurrency asset class had $1.17 trillion in assets. Bitcoin’s market cap was 50% of the total, with Ethereum’s market cap at 19%. The over 26,000 cryptos have the balance, but Bitcoin and Ethereum are the only tokens with market caps above $84 billion.
Betting on Bitcoin may be the optimal approach- But only bet what you are willing to lose
When market participants are offered a word association question, the response to cryptocurrency is overwhelmingly Bitcoin. Therefore, aside from Max Keiser’s musings on the regulatory future, Bitcoin will likely attract the most activity as it is the most liquid crypto.
Bitcoin broke out to the upside, and if Ethereum follows, it could provide speculators with an even greater percentage return. However, investing in cryptos is a misnomer, as any position is highly speculative.
Bitcoin has been around since 2010, and Ethereum since 2015. The leading cryptos offer market participants incredible potential at commensurate risks. Therefore, speculating on Bitcoin, Ethereum, or any other cryptocurrency comes with significant risks. While they could soar, that potential means they could also become worthless. Approach cryptos with the complete understanding that the profit potential comes with the risk of total loss.
As of June 30, trend-following suggests that Bitcoin is sitting at a level that could be a launchpad to much higher prices, but the risk of falling into a bearish abyss is always a clear and present danger.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
