Warning for Altcoin bulls: The Ether-Bitcoin ratio is about to flash death cross

Technical analysis is flashing several warning signals to alternative cryptocurrency (altcoin) bulls, with the ether-bitcoin (ETH/BTC) ratio dropping below a support level and on the verge of falling into an ominous death-cross technical pattern. The options market shows investors are taking the hint.

A death cross occurs when a short-term moving average drops below the long-term moving average, signaling a potential long-term bearish shift in momentum.

The ratio's 50-week simple moving average (SMA) appears on track to cross below the 200-week SMA, according to charting platform TradingView. The impending death cross signals risk aversion or prolonged underperformance of ether (ETH) and other altcoins relative to bitcoin (BTC).

Historically, altseasons have been characterized by ETH/BTC uptrends. (TradingView) (TradingView)

Since 2017, the crypto market has oscillated between bitcoin-led regimes and altcoin-led regimes. More importantly, altcoin leadership has been characterized by a rising ETH/BTC ratio. In other words, traders are willing to take more risk when ether is outperforming bitcoin and vice versa.

The ETH/BTC ratio has dropped nearly 10% to 0.048 this year, TradingView data show.

"The ETH/BTC cross is testing a critical support level after breaking below 0.05," Singapore-based QCP Capital said in a market note Friday. "There has been a persistent large selling of ETH calls which has crushed [volatility] and also put some downside pressure on price. Could this again be a very early signal of [bullish] FOMO turning into fear in ETH as a proxy for alts."

The way bitcoin and ether options are currently priced on Deribit, the leading derivatives exchange, also points to expectations for ether underperformance in the near term.

At press time, ether puts expiring in seven days, one and two months traded at premiums of 5%, 3% and 0.3%, respectively, to calls. A put option gives the purchaser the right, but not the obligation, to sell the underlying asset at a predetermined price at a later date. A call option gives the right to buy, so the premium for puts – which provide protection against a price decline – indicates a bearish outlook.

In Bitcoin's case, the bias was for calls across maturities, excluding seven-day options.