What’s Really Fueling ETH’s Rally?

The consensus in the crypto market is that the ongoing ether (ETH) rally, which has extended to other altcoins, is driven by capital rotation from bitcoin (BTC). However, on-chain data obtained by CryptoQuant has proven that the information is false.

According to a report by CQ’s analyst Carmelo Aleman, fresh inflow from investors is driving the ETH rally, not capital rotation from bitcoin. Market participants are not selling BTC to buy ETH – the Bitcoin Realized Capitalization serves as evidence for this claim.

What is Driving Ether’s Rally?

This month, ETH has climbed over 60% from $2,400 to $3,850. On the other hand, BTC has increased by 14% from $107,000 to hit an all-time high (ATH) above $123,000. Although BTC declined briefly to the $115,000 zone, it has consolidated mostly between $117,000 and $120,000.

As of July 25, bitcoin reached a new ATH in Realized Cap at $1.018 trillion. This metric represents the market cap of bitcoin by telling the price at which each BTC was last moved on-chain. Hence, it reflects the total acquisition cost of all BTC in circulation, factoring in accumulation trends and large-scale selling.

The increase in Realized Cap indicates that the capital invested in bitcoin is rising, not declining. So, instead of dumping BTC for ETH and other altcoins, investors are allocating fresh capital to their other crypto holdings.

No Major Capital Rotation

Addressing bitcoin’s consolidation concerns, Aleman explained that such price pauses can be attributed to capital accumulation phases that come before exponential rallies. The market has witnessed such dynamics in past bull cycles; this time will be no different.

“So, what’s happening with ETH? The answer is simple: following the Genesis Law, along with the strong growth prospects of the Ethereum ecosystem, there has been a surge in capital invested in ETH this July, but without reducing positions in BTC,” the analyst added.

In conclusion, there is no major capital rotation from BTC to ETH. Investors are just injecting new capital through exchange-traded funds (ETFs) and other investment products. Institutional demand for ETH is currently at peak levels, with spot Ethereum ETF purchases accounting for more than the daily production of ether.

Ethereum investment products just recorded their second-largest weekly inflow at $1.59 billion. Inflows into the products this year have exceeded the total recorded in all of 2023.