How to Trade ETH/BTC: Bitcoin-Ethereum Explained

The ETH/BTC (ETHBTC) trading pair offers a unique perspective on the dynamic relationship between Ethereum and Bitcoin. Let's take a closer look at the ETH/BTC in this Plus500 crypto trading guide:

TL;DR

• The ETH/BTC pair represents the relation between the price of Ethereum (ETHUSD) and the price of Bitcoin (BTCUSD).
• Bitcoin and Ethereum are the crypto market's behemoths, ranked as the first and second most important cryptocurrencies by market cap as of July 2024.
• Broader economic conditions and cryptocurrency-specific factors drive ETH/BTC price fluctuations.

Bitcoin (BTC) & Its Role as a Dominant Cryptocurrency

The leader and dominant force in the cryptocurrency space is Bitcoin.

Introduced in 2009, the way Bitcoin works revolutionised the financial industry by creating a peer-to-peer, decentralised digital currency system that ensures user confidence through the distributed ledger technology of its underlying blockchain.

Even though many other cryptocurrencies have appeared since then, such as Avalanche, Cardano, and Polkadot, Bitcoin's history remains one of the strongest in the crypto industry. Bitcoin also continues to be the most well-known and frequently traded digital asset as of July 2024, often influencing the direction of the larger cryptocurrency market.

Its reputation as a digital store of value for many investors is cemented by its market capitalisation, which places it at the top of all cryptos since its creation (as of July 2024).

The launch of Bitcoin ETFs in January 2024 further expanded access and investment avenues for a broader audience.

Ethereum (ETH) & Its Value as a Smart Contracts Platform

Ethereum is a platform that introduced the concept of smart contracts, self-executing contracts embedded directly within the blockchain—a new milestone in the crypto market.

It has allowed the creation of decentralised applications (dApps) beyond simple transactions. So Ethereum's value lies in its ability to host and execute these smart contracts.

Ethereum is akin to the Internet, providing the infrastructure for countless applications. From decentralised finance (DeFi) protocols to non-fungible tokens (NFTs), Ethereum has become the backbone of a burgeoning ecosystem.

Its native cryptocurrency, Ether (ETH), fuels these operations, making it a crucial asset within the platform and the second-largest cryptocurrency by market cap as of July 2024.

Ethereum has undergone significant transformations throughout its history to solidify its position as a leading blockchain platform. The 2022 transition from a Proof-of-Work (PoW) to a Proof-of-Stake (PoS) consensus mechanism was pivotal, enhancing the network's efficiency and sustainability with the Ethereum merge upgrade.

Ethereum ETFs, available since July 2024, could catalyse increased demand for Ether by providing a more accessible entry point for traditional investors.

Differences & Similarities between ETH and BTC

Ethereum and Bitcoin are similar in that they are cryptocurrencies but have different purposes.

Bitcoin's main uses are as a store of wealth and a medium of trade. Ethereum, on the other hand, is a platform for innovation rather than just money, as it has expanded the potential applications of blockchain technology by adding smart contracts.

While both rely on blockchain, Ethereum operates on a different consensus mechanism (Proof of Stake) than Bitcoin's Proof of Work, which impacts transaction speed and energy consumption.

Read “What is the difference between Ethereum and Bitcoin?” to learn more.

ETH/BTC Price History

As of July 2024, the ETH/BTC ratio has exhibited an overall bullish trend. So far, Ethereum dominance, such as in 2016, 2017, 2020, and 2021, has alternated with Bitcoin-led cycles in 2015, 2018, 2019, 2022, 2023, and 2024.

While historical performance does not indicate future results, the overall trend suggests increasing stability in the ETH/BTC pair, with smaller fluctuations and larger upward movements compared to bearish ones.

For instance, the pair's substantial gains of over 280% in 2016 and 547% in 2017 contrast sharply with the more modest losses of 9% in 2022, 25% in 2023, and 10% in 2024 (as of 2024).

How Does the ETH/BTC Quote Work?

Like traditional Forex pairs like the EUR/USD, the GBP/USD, or the USD/JPY, the ETH/BTC quote represents the exchange rate between Ethereum and Bitcoin. If the exchange rate is 0.04, then it means that it takes 0.04 BTC to buy 1 ETH.

The ETH/BTC quote serves as a comparative measure of these two leading cryptocurrencies. By examining the fluctuations of Ethereum's price relative to Bitcoin, traders can gain valuable insights into market sentiment and potential trading opportunities.

Why Does the ETH/BTC Pair Matter to Crypto Traders?

Bitcoin, the pioneer, and Ethereum, the innovator, represent two distinct paths in the blockchain world. Their dynamic interplay, reflected in the ETH/BTC ratio, offers valuable insights for traders.

As a barometer of relative strength, this ratio helps gauge investor confidence in Ethereum compared to Bitcoin. Most importantly, fluctuations in the ETH/BTC pair often mirror broader market trends and market sentiment changes within the cryptocurrency ecosystem.

How to Trade the ETH/BTC Pair via CFDs

An increasing ETH/BTC signifies Ethereum's outperformance relative to Bitcoin. Conversely, a declining pair indicates Bitcoin's dominance.

Traders who trade the ETH/BTC pair speculate on Ethereum's price appreciation compared to Bitcoin. Conversely, those short-selling the pair anticipate Bitcoin's relative strength.

Deciding whether to trade rising or falling markets depends on your trading strategy (day trading, swing trading, position trading) and the market configurations you can spot through technical analysis and/or fundamental analysis.

Want to get into ETH/BTC CFD trading? Open a Plus500 trading account to start trading ETH/BTC with CFDs.