Bitcoin (BTC) and Ethereum (ETH), the world’s top two crypto assets by market capitalization, have been moving in tandem for much of 2022. That positive correlation has weakened this year, suggesting a market regime change is imminent.
As of May 15, the 30-day rolling correlation between Bitcoin and Ethereum price movements was 77%, the lowest since 2021, according to cryptocurrency data provider Kaiko, which was seen two months ago. % is significantly weaker.
Ethereum has diverged from Bitcoin for a short time in the past. According to Pulkit Goyal, vice president of trading at OrBit Markets, an institutional liquidity provider for crypto options and derivatives, this weakening in correlation could last for a long time. Bitcoin, the largest and most liquid cryptocurrency, may no longer lead Ethereum and the broader crypto market.
“What we are seeing now may be the beginning of a long-term regime change. Just as Ethereum moved from PoW to PoS, the underlying supply and demand economics of the two tokens will continue to diverge. ,” Goyal told CoinDesk.
“Bitcoin will solidify itself as a ‘digital gold’ or blue chip stock, while Ethereum will be seen as a growth stock or emerging market,” Goyal added.
Silkworm’s latest weekly newsletter makes a similar statement: “BTC and ETH both appear to be increasingly diverging, driven by idiosyncratic factors.”
In September 2022, Ethereum, the world’s largest smart contract blockchain, transitioned from an energy-intensive Proof-of-Work (PoW) mechanism for validating transactions to Proof-of-Stake (PoS). Ethereum recently implemented a “Chapera” upgrade, de-risking the passive investment strategy of locking or staking coins into smart contract platforms in exchange for rewards. The amount of ETH burned by the network is closely tied to the degree of usage of the network.
Meanwhile, as a macro-asset, Bitcoin continues to retain its appeal as a hedge to traditional finance, given changes in inflation and fiat liquidity. The pace of Bitcoin supply growth halves every four years through a program process called mining reward halving. A fourth halving is planned for next year.
“After the move to PoS governance mechanisms, Ethereum may be seen as a different asset class within the same realm. This may change, but for the time being bitcoin is more likely to be dominated by macroeconomic factors and institutional investment. While Ethereum is affected, it may just be less correlated with macroeconomic conditions, for better or worse,” analysts at exchange Bitfinex said in an email. there is
The Bitfinex analyst further added, “The two assets can be viewed as different asset classes from a price volatility perspective, even though they are in the same space. This is a good move for the cryptocurrency market.”
Decoupling the two could boost trading activity for Bitcoin and Ethereum pairs listed on major exchanges, including Binance.
“Decoupling may provide new opportunities for traders to capture the relative value between two tokens without going through the dollar. “There is,” Goyal said.
｜Translation: coindesk JAPAN
｜Editing: Toshihiko Inoue
｜Original: Bitcoin-Ether Correlation Weakest Since 2021, Hints at Regime Change in Crypto Market