Ether (ETH), the native token of the Ethereum network, has declined by approximately 25% against Bitcoin (BTC) since the beginning of 2024, reaching its lowest levels in 40 months. The outlook for Ether remains bearish in the coming weeks, particularly as the probability of Federal Reserve interest rate cuts in September rises.

ETH/BTC and USD Correlation Grows

A significant factor contributing to Ether’s bearish outlook is the increasing positive correlation between the ETH/BTC pair and the U.S. Dollar Index (DXY), which has dropped 5.35% from its 2024 peak. As of Aug. 26, the 30-day average correlation coefficient between ETH/BTC and DXY was 0.78, up from 0.10 at the start of the year.

This trend suggests that traders have been shifting away from Ether in favor of Bitcoin, reallocating their holdings or prioritizing Bitcoin for new investments, especially as the dollar weakens against a basket of major foreign currencies.

Multiple Factors Behind the Capital Rotation

Several factors have driven the rotation of capital from Ether to Bitcoin. One major factor is the launch of Bitcoin-focused spot exchange-traded funds (ETFs) in the U.S. in January 2024. Since their launch, these ETFs have attracted inflows totaling $17.86 billion, according to Farisde Investors data.

In contrast, the launch of Ether ETFs in late July saw a lukewarm response, leading to $465 million in withdrawals. The Grayscale Ethereum Trust (ETHE) has further worsened the situation, reporting $2.53 billion in outflows, diminishing traders’ interest in Ether compared to Bitcoin.

Dollar Breaks Below Key Long-Term Support

On Aug. 23, the U.S. Dollar Index fell below a multi-month horizontal support level following Fed Chair Jerome Powell’s dovish comments at the Jackson Hole symposium. Independent market analyst Elja Boom noted this decline as a sign of potential “freefall” for the dollar, citing a Bearish Gartley pattern that indicates further downtrend, potentially targeting the 94-96 level.

“This is very bullish for BTC and crypto,” Boom added.

ETH/BTC Faces a 10% Decline in September

A stronger positive correlation with DXY could push ETH/BTC lower in September, especially with the formation of a V-top pattern on shorter timeframes. The V-top pattern, characterized by a steep rise followed by an equally sharp decline, suggests a potential continuation of the downtrend for ETH/BTC. In this case, ETH/BTC saw a rapid rise in late July, followed by a sharp drop starting in early August.