Bitcoin and Ethereum are highly correlated, but still have significant moves relative to each other. Sometimes, it is more beneficial to have capital in Bitcoin, and sometimes it’s best to jump over to Ethereum. In this article, I’ll give you the needed tools to figure out when and why you should trade your Bitcoin for Ethereum, and the other way around.
You should trade Bitcoin for Ethereum when the ETH/BTC chart is bullish, when the Bitcoin dominance is high or when “no one else” is buying Ethereum. Historically speaking, these times have been highly profitable.
BTW, if you need a complete strategy for investing and trading Bitcoin or Ethereum, you need to check out these two articles:
Let’s get into the details of what I do, and how you can copy it!
When To Convert BTC to ETH (or the other way):
There are three things I use to figure out if I should have my capital in Bitcoin or Ethereum:
- The ETH/BTC chart (technical analysis)
- The Bitcoin dominance
- General market sentiment
Let’s go through them one by one.
Technical Analysis Of ETH/BTC:
The ETH/BTC chart tells us how much Bitcoin we can get per ETH we have. It shows the Bitcoin price of Ethereum.
If this chart goes up, it means that Ethereum is performing better than Bitcoin. If it goes down, it means that Ethereum is underperforming Bitcoin.
It tells us nothing about the USD price of the two coins. This chart can go up even if the USD price of both are falling if Bitcoin falls faster than Ethereum, or go down if Ethereum falls faster than Bitcoin.
By performing technical analysis, we can predict if Ethereum will outperform Bitcoin, and consequently figure out is you should trade your Bitcoin for Ethereum or not.
Below you see an example of a technical analysis I did a few years ago, showing a general trend-channel and how I used it to trade back and forth between Bitcoin and Ethereum:
In general, I traded Bitcoin for Ethereum at the bottom of the channel (green arrows), and on the red arrows, I traded Ethereum back to Bitcoin.
This way, I’m able to take advantage of the relative price changes between Bitcoin and Ethereum. It also makes a significant difference in ROI in terms of USD:
Let’s say you manage to squeeze out a 2x gain in terms of BTC by trading the ETH/BTC chart. Assume also that Bitcoin itself increased 300% in terms of USD.
In total, your ROI will then be 2 * 300% = 600%. You increased USD-ROI by 300 percentage points by 2x’ing your Bitcoin value!
“Wow, that’s awesome! But I don’t know how to do technical analysis…”
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Using The Bitcoin Dominance To Trade Bitcoin and Ethereum:
The Bitcoin dominance (BTC.D) is a metric showing what percentage of the total crypto market lies in Bitcoin. If the BTC.D is at 50%, Bitcoin is 50% of the whole crypto market.
For example, if the crypto market is evaluated at two trillion USD and the BTC.D is 50%, Bitcoin’s market cap is one trillion USD, because one trillion is 50% of two trillion.
The Bitcoin dominance quantifies the relationship between Bitcoin and altcoins. If it is high, it means that Altcoins are cheap, and if it is low, it means that altcoins are expensive.
Once again: If BTC.D is high, Altcoins are cheap. If BTC.D is low, Altcoins are expensive.
We want to buy cheap stuff and sell expensive stuff, right?
Therefore, we should aim to trade our Ethereum over to Bitcoin when the BTC.D is low, and trade our Bitcoin over to Ethereum when the BTC.D is high.
The BTC.D can also be viewed as a chart, and you can perform technical analysis on it to predict the Bitcoin vs Altcoins outcome in the future. Below you’ll find an example:
The white lines form a “rising wedge”, which is a bearish pattern signaling a crash. The green lines are where the rising wedge predict the BTC.D will find support. As seen above, the prediction fitted well and was accurate.
One can use predictions like these to trade Bitcoin vs Ethereum, but also Bitcoin vs altcoins in general.
Once again, I analyze this metric in the newsletters I broadcast. You can sign up for free below:
General Market Sentiment To Trade Ethereum And Bitcoin:
If you’re involved in Facebook groups, subreddits, or Telegram channels, you can gauge the general sentiment and hype of Ethereum and Bitcoin, respectively. You can use this to inform your trading decisions.
In general, this is what you want to do:
When everyone is buying Ethereum, and the hype is through the roof, you want to start trading your Ethereum over to Bitcoin. On the other hand, when no one is talking about Ethereum and Bitcoin is in focus, you want to trade your Bitcoin for Ethereum. However, you first want to ride the hype wave before you make the trades. Timing is the hard, but essential part.
It’s is more of an art than a science, which makes it hard to learn. However, if you stick around a while and experience a few hype cycles, you’ll get a feel for when the tide is about to turn.
Things to watch out for, signaling the Ethereum is over-hyped:
- Ethereum is constantly in the news
- “Everyone” is buying Ethereum
- “Everyone” is convinced that “The Flippening” (Ethereum growing bigger than Bitcoin in terms of market cap) is imminent.
- People say that Bitcoin is out-dated, and that Ethereum is the real cryptocurrency
- The price of Ethereum surges way more than Bitcoin
It is hard to time the trade over to Bitcoin. You need to ride the price surge before trading, but you need to get out before it crashes, which it always does…
Should You Invest Or Trade Bitcoin And Ethereum?
Let’s get one thing clear, investing and trading are not the same thing. Trading is more about speculating about what coins are going to be better in the short – midterm. Investing is buying and holding for the long term.
What I do myself is this:
Bitcoin Investing > Bitcoin Trading
I prefer Bitcoin investing. Roughly 70% of my Bitcoin I hold for the long term in a Celsius wallet. If you don’t know about Celsius, you need to check out this article about how Celsius can give you passive income for free.
The other 30% I trade against Ethereum and other altcoins like ADA, LINK, UNI etc. You can follow my trades in the newsletters I broadcast by signing up below:
To get my complete Bitcoin strategy, check out this article.
Ethereum Investing < Ethereum Trading
Due to its higher volatility, Ethereum makes for a better trading vehicle. For this reason, I trade most of my Ethereum.
For example, in May of 2021, I traded about 80% of my ETH over to BTC. A few months later, I started to buy up ETH with the goal of trading again in a few months, like 3-12 months, depending on what the market does.
This long-term kind of trading, buying and holding for a few months before trading, is called “swing-trading”. In general, it’s the easiest and often most lucrative way to trade Bitcoin for Ethereum and vice versa.
Generally, I trade up to 80% of my Ethereum. I (almost) always hold some of it just in case, but only in bull markets.
You need to use one of these three tools to figure out when to convert your BTC to ETH or the other way around:
- Technical analysis on the ETH/BTC chart
- The Bitcoin dominance
- General market sentiment
Using these, you can determine which of the two coins is likely to outperform the other in the short-mid or long term. This gives you an edge and puts you in a position to profit from the coming price moves in the crypto market.
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