Bitcoin-Ethereum: The historical correlation between the two cryptos is collapsing!

Historically, Bitcoin (BTC) and Ethereum (ETH) have been linked in market movements. A recent study conducted by Kaiko Research on this subject shows a notable reversal of this crypto trend.

Decoupling of Bitcoin and Ethereum Linked to Market Slowdown

Bitcoin (BTC) and Ethereum (ETH), once closely linked in their market movements, are experiencing a significant decoupling. As highlighted by a recent study from Kaiko Research, the correlation between these two major cryptos is at its lowest level since 2021.

This change in dynamics comes against the backdrop of a broader market slowdown. Indeed, the prices of Bitcoin and Ethereum have fallen by nearly 6% over the past week to currently stand at $41,757 and $2,472, respectively.

Traditionally, the correlation between Bitcoin and Ethereum has been closely linked, typically staying around the 0.71 mark. However, the recent divergence raises critical questions about the future trajectory of Ethereum.

This is particularly notable as its trading volume increases without concurrent signs of a derivatives market recovery. This situation contrasts sharply with that of Bitcoin, which experienced substantial growth in anticipation of ETF approvals.

#Bitcoin and #Ethereum correlation plunges to lowest since 2021#Kaiko Research highlighted that the correlation between Bitcoin and Ethereum has dropped below its average of 0.71 for the first time since 2021. This development comes amidst a broader market downturn, with BTC… pic.twitter.com/TTh8hXk9hn

— Jurijus (@TrendProCrafter) January 20, 2024

What does this trend mean?

Upon analyzing Bitcoin’s (BTC) recent performance, it is evident that the flagship crypto has delivered an impressive return of 100% over the past year. A performance that surpasses the 60% gains of Ethereum (ETH) during the same period.

But the approval of Bitcoin Spot ETFs seems to have been a turning point in the dynamics of the two cryptos. A shift that led to a fall in the price of BTC and an ETH rebound fueled by speculation about the upcoming approval of an Ethereum Spot ETF.

This scenario underlines the evolving dynamics between Bitcoin (BTC) and Ethereum (ETH). The course of the Bitcoin Spot ETF seems to have played a role in strengthening the asset’s presence in the market. While the path forward for ETH appears less clear.

The diminished correlation with BTC suggests the possibility of ETH exhibiting independent market behavior. However, the lack of traditional rally indicators in the derivatives markets and the shedding of beta ETH assets after the approval of the Bitcoin ETF inject a level of uncertainty. Particularly in terms of the future trajectory of ETH.