In recent years, the correlation between the two largest cryptocurrencies on the market, Bitcoin (BTC) and Ethereum (ETH), has often been very high.
However, the correlation between these two currencies has fallen to its lowest level in two years, according to new data.
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The correlation between Bitcoin and Ethereum drops to its lowest level in 2 years
Since the end of the 2017 bull market and the beginning of the 2018 crypto winter, the correlation between Bitcoin and Ethereum has increased significantly.
Over the past five years, this correlation has regularly approached the value “1,” meaning perfect correlation. This brought the average 60-day correlation between both currencies to 0.71.
However, analytics firm Kaiko reported on January 18 that the correlation between Bitcoin and Ethereum is below the average of 0.71 for the first time since the beginning of 2021.
For the first time since 2021, the BTC:ETH correlation fell below its all-time average of 0.71.
What does this mean for a possible place? #ETH ETF approval? pic.twitter.com/qJSqVVDkbJ
– Kaiko (@KaikoData) January 18, 2024
What causes this correlation to decrease?
Over the past five years, Bitcoin and Ethereum prices have regularly been in sync. This trend could return soon, but the drop in correlation could also herald a new phase for the market and the relationship between these coins.
The reason for this divergence is most likely due to the recent approval of the first Bitcoin spot ExchangeE-traded funds (ETFs) in the United States.
As major asset managers resubmitted applications for their Bitcoin ETFs last summer, Bitcoin prices began to outperform Ethereum prices. As a result, the correlation has already started to decrease.
The market had expected this to continue if the US Securities and Exchange Commission (SEC) approved the ETFs. However, we saw the price of Ethereum fall and the price of Ethereum rise, further reducing the correlation.
There is speculation that the hype surrounding Bitcoin ETFs has also spread to Ethereum. Finally, the asset managers have also filed applications for spot Ethereum ETFs with the SEC.
“It is no coincidence that this happened on the day the Bitcoin spot ETFs began trading,” Kaiko said. “For months, the price activity of the two crypto assets has diverged, as BTC benefited from ETF hype and speculation while ETH experienced a relatively slow rally.”
However, Ethereum could not sustain this increase for long. The entire crypto market seems to be undergoing a correction since the introduction of ETFs.
The market currently believes that the SEC will not announce its decision on these Ethereum ETF applications until the end of May.
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