The flopping? Ethereum price weakens after the merger, with a 55% downside risk against Bitcoin

Ethereum’s native token Ether (ETH) is forming an inverted cup-and-handle pattern from May 2021 on the weekly chart, which suggests a potential downside against Bitcoin (BTC).

ETH/BTC weekly price chart with reverse cup and handle analysis setup. Source: TradingView

A cup-and-handle reversal is a volatile reversal pattern, accompanied by lower trading volume. It is usually resolved after the price breaks below its support level, followed by a decline towards the level in length equal to the maximum height between the top of the cup and the support line.

Applying the theoretical definition to the weekly chart of ETH/BTC shows 0.03 BTC as the next downside target, down about 55% from the September 16 price.

Can ETH/BTC Pull a Dow Jones?

Alternatively, the ETH/BTC pair could still deliver some big gains in the coming years.

On the weekly calendar, the ETH/BTC pair is plotting a potential cup and handle from January 2018. In other words, a rally to 0.5 BTC in 2023 is on the table, over 520% ​​from current price levels .

Unlike the reversal counterpart mentioned above, cup-and-handles are bullish reversal patterns with their bullish targets at levels equal to their maximum height when measured from their breakout point.

Veteran analyst Tom Bulkowski notes that these patterns have a 61% success rate in achieving their upside targets.

For example, the cup and handle pattern that formed on the Dow Jones chart during the Great Depression of the 1930s and 1940s—where the cup took nine years to develop and the handle another four years—reached its bullish target in the 1950s. as shown below.

Dow Jones Industrial Average cup and handle pattern. Source: StockCharts.com

Possibly, ETH/BTC could now be in the grip stage of a similar cup and handle pattern as seen through the purple shaded descending channel area in the chart below.

ETH/BTC weekly price chart including breakout setup with cup and handle. Source: TradingView

The pair is waiting for a breakout move above the 0.08 BTC pattern resistance level. It is currently trading lower within the handle range, looking for a pullback to the lower trendline around 0.05 BTC after testing the upper as resistance this week.

Flipping or flopping?

Ethereum’s ability to overtake Bitcoin by market capitalization has been commonly called “the flip.”

Ethereum is competing with Bitcoin to become a so-called “inflation hedge,” according to Joshua Lim, head of derivatives at Genesis Trading. Lim cited Ethereum’s EIP-1559 update from August 2021 that introduced a fee burning mechanism to its protocol.

Related: Academic research claims ETH is a ‘superior’ store of value to Bitcoin

According to Ultrasound.Money, Ether supply growth is now minus 1.43% per year. In other words, the coupon could become “deflationary” over time. Lim argues that makes Ether an attractive alternative to Bitcoin among institutional investors.

But many support the disruptive narrative, including Rahul Singh, co-founder of the Defi FINtokens platform. He told Cointelegraph that Bitcoin will continue to exist as “digital gold” while Ethereum will become an “Internet 2.0” project.

As of September 2022, Ether’s market cap is $175 billion compared to Bitcoin’s $372 billion.