Bitcoin-Ether Correlation Weakest Since 2021, Hints at Regime Change in Crypto Market
Bitcoin (BTC) and Ether (ETH), the top two cryptocurrencies by market value, have traditionally moved in tandem. However, their correlation has weakened in 2022, indicating a potential shift in the market dynamics.
The 30-day rolling correlation between Bitcoin and Ether prices was recorded at 77%, the lowest since 2021 and significantly weaker than the 96% correlation observed two months ago. This decoupling suggests a long-term regime change, where Bitcoin may no longer act as the anchor for Ether and the broader cryptocurrency market.
Pulkit Goyal, Vice President of trading at OrBit Markets, believes that this weakening correlation signifies a shift in the underlying supply and demand dynamics between Bitcoin and Ethereum. As Ethereum transitions from a proof-of-work (PoW) to a proof-of-stake (PoS) consensus mechanism, the economic factors driving the two tokens will continue to diverge. Goyal predicts that Bitcoin will solidify its position as “digital gold” or a blue-chip stock, while Ether will be seen as a growth stock or an emerging market.
Kaiko, a crypto data provider, also noted in its weekly newsletter that both BTC and ETH appear to be influenced by divergent idiosyncratic factors, further supporting the view of a decoupling between the two cryptocurrencies.
Ethereum’s transition to PoS and recent implementation of the Shapella upgrade have influenced its economic landscape, making it distinct from Bitcoin’s macro asset characteristics. Ethereum’s network usage and the amount of ether burned are now closely tied, introducing new dynamics to its market behavior. Meanwhile, Bitcoin remains influenced by macroeconomic factors, inflation figures, and its role as a hedge against traditional finance.
The decoupling of Bitcoin and Ether may present new opportunities for traders, allowing them to capture relative value between the two tokens without involving fiat currencies. The demand for options in the BTC/ETH cross has already increased in the over-the-counter (OTC) space.
As the correlation between Bitcoin and Ether weakens, it marks an important shift in the cryptocurrency market. Traders and investors will need to closely monitor the evolving dynamics between these two prominent digital assets to navigate the changing landscape successfully.