Investing in ETH/BTC: What to consider
This financial instrument represents the value of a single Ether (Ethereum) token in Bitcoin. Two of the largest cryptocurrencies in the world, Bitcoin and Ethereum can often be impacted by different factors, affecting the value of one against the other. Crypto traders can use the ETH BTC cryptocurrency pair to try and generate a profit when the scale tips towards one side of it. Those who believe Ethereum will grow in value against Bitcoin could open a long (BUY) position on this instrument, and those who favour Bitcoin could open a short (SELL) position.
The ETHBTC cryptocurrency pair will be open for investment with a limit placed on the daily invested amount. When it reaches its daily limit, it will be closed to new investors and reopened the following day. Closing the investment can be done at any time.
Who should include BTC/ETH in their portfolios?
Long-term investors: The cryptocurrency market is highly volatile, however, it also displays long-term trends. Investors who believe they can predict the long-term relationship between Ethereum and Bitcoin could use the ETHBTC instrument as a long-term investment option.
Day traders: High volatility in the crypto market is quite common, and cryptos have been known to show great price swings over the course of a single day. Traders can try and take advantage of these movements in an attempt to generate short-term profits.
Cryptocurrency traders: While often bought and sold using fiat currencies, cryptocurrencies could also be purchased using other cryptos. Therefore, crypto traders who wish to diversify their portfolios and explore new ways of crypto trading could add this instrument to their portfolios.
Blockchain enthusiasts: Bitcoin was the world’s first large-scale project involving blockchain and Ethereum was the first platform that enabled developers to create their own blockchain apps. While both are blockchain networks, it is possible that occurrences within the blockchain space will have a higher impact on one side of the pair over the other.
What drives the ETH/BTC pair’s price?
The ETH/BTC pair is a unique financial instrument, since it pins two cryptocurrencies against each other. These cryptocurrencies could be impacted by similar factors, making their prices move in tandem. However, there are a number of factors that could impact one crypto more than it would the other, such as:
Traditional financial institutions: Whenever the discussion arises regarding the inclusion of cryptocurrencies in mainstream financial markets, the spotlight is almost always on Bitcoin - since it is the first, and perhaps the most well-known, cryptocurrency. Therefore, news regarding the inclusion (or exclusion) of cryptos within a traditional financial construct could often impact Bitcoin prices before other cryptocurrencies.
Adoption of blockchain technology: Both Bitcoin and Ethereum are blockchain based, so it stands to reason that if adopted by mainstream high tech companies, it would benefit both cryptos. However, since Ethereum is the only one of the two that offers a wide array of potential blockchain applications, such an occurrence could have a more positive impact on Ethereum than on Bitcoin.
Crypto-specific news: While both cryptos could be impacted in a similar way by various trends within the crypto market, there are other instances in which one could be more affected than the other. For example, if a news report suggests that one of the cryptos is more vulnerable to attacks than the other, it would most likely cause that crypto to lose strength against its peers.
Regulatory issues: Most major cryptocurrency markets around the world either have, or are in the process of creating, regulations for cryptocurrency trading. Since regulations could impact different cryptos in different ways, it is possible that a new regulation in a major market could benefit one crypto while hindering the other.
The alliances that benefit each crypto
There are different forces in the market that are trying to promote cryptos. Other than the creators of the cryptocurrencies themselves, there are other bodies that are strongly in favor of certain cryptos. Both Bitcoin and Ethereum have powerful allies, who are trying to promote their status within mainstream industries.Two examples are:
The Winklevoss twins: Made famous due to their involvement in the early stages of Facebook (dramatised by their portrayal by actor Armie Hammer in the movie “The Social Network”), Tyler and Cameron Winklevoss are strong advocates of Bitcoin. The two have greatly grown their wealth through Bitcoin investments and are actively trying to expose it to new markets. Most notably, the two created a Bitcoin-based ETF and submitted it for review by the American SEC. Much to their dismay, the SEC has repeatedly rejected such instruments - but it is likely the two brothers will continue and try to introduce them into mainstream markets.
Enterprise Ethereum Alliance: Ethereum enjoys the support of numerous well-known tech and financial companies, wanting to promote the use of the platform as the go-to infrastructure for creating blockchain technology. With names such as Microsoft, BP, Intel and Ernst and Young among the Alliance’s 500 members, Ethereum has received the seal of approval from some of the giants of the global economy.
Conclusion: BTC/ETH is a new path to portfolio diversity
As the cryptocurrency market grows and expands, new ways of participating in it will arise. From being an alternative payment form, through becoming an investment vessel, to exploding into a market with hundreds of different crypto assets, the cryptocurrency space is continuously making its way into the portfolios of millions around the world. As with all financial asset classes, crypto traders and investors are also constantly looking for new ways to diversify their portfolios as part of their strategies. Pinning Ethereum against Bitcoin gives those traders another interesting form of trying to benefit from the ever-evolving crypto space.
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This content is for informational and educational purposes only and should not be considered investment advice or an investment recommendation. Past performance is not an indication of future results.