Analyzing Bitcoin's Market Panic: A Closer Look at Ethereum's Resilience

Bitcoin’s recent steep decline from approximately $107,000 on November 11 to around $81,000 on November 21 has sent shockwaves through the trading community. However, fresh on-chain insights indicate that this event was primarily a Bitcoin panic rather than an Ethereum crisis.

Diverging Sell-Offs

Research from XWIN Research Japan indicates a marked difference in how Bitcoin and Ethereum responded during the October-November correction. Bitcoin’s price saw a substantial drop into the low-70s, while Ethereum sustained a smaller decline into the high-60s.

Historically, a 30% retracement in BTC typically triggers a 40-50% drop in ETH. This time, however, the disparity was notably narrower, indicating Ethereum’s relative strength amidst market fear.

This resilience can be attributed to Ethereum’s supply dynamics post-Merge. A larger portion of ETH is currently staked, and EIP-1559 actively reduces circulating supply during peak demand times, limiting the availability of coins for sell-offs during market turmoil.

Conversely, Bitcoin faced a substantial liquidation spike on November 21, with reports suggesting nearly $2 billion in positions were liquidated in a single day. The price briefly fell to $81,000 but rebounded above $84,000 and later regained grounds near $88,000 during the weekend.

Currently, BTC trades around $86,000, reflecting a 10% dip over the week, 19% over the past two weeks, and 23% over the month. Meanwhile, ETH is valued near $2,800, showing a 12% decline on the week and 29% monthly decrease, but still less severe compared to previous market cycles.

At present, Bitcoin’s MVRV ratio, a crucial valuation metric, has decreased from around 2.5 earlier this year to approximately 1.5 during this downturn, often indicating significant mid-cycle adjustments rather than peak levels.

Ethereum’s Risk and Supply Dynamics

Nevertheless, even with seemingly favorable conditions for Ethereum, there are warnings regarding the increasing risks in the derivatives market. CryptoOnchain reports that Ethereum’s leverage ratio on Binance reached an unprecedented 0.562 while its price plummeted from around $4,200 to $2,800. This suggests that traders are excessively engaged in long positions amidst a downward price trend, increasing the potential for further liquidations if market conditions worsen.

Analysts have described the current market as a ‘Zebra Market,’ a term coined by XWIN Research that characterizes unpredictable price fluctuations rather than a consistent bullish or bearish trend. In this turbulent environment, on-chain data is invaluable as it helps discern genuine market signals from the chaos, framing the recent episode as primarily a Bitcoin-induced panic rather than a fundamental breakdown in Ethereum’s stability.