- The correlation fell below 80% over the week from ATH levels of 97% at the end of 2022.
- The recent price action of the two coins showed that both have moved on a similar wavelength.
Bitcoins [BTC] correlation with Ethereum [ETH] dropped to the lowest level since November 2021, indicating a significant divergence in the growth trajectories of the two blue chip cryptocurrencies in the market.
Read Bitcoin (BTC) Price Prediction 2023-24
Based on a 40-day rolling window, the correlation fell below 80% over the course of the week, according to market data provider Kaiko. This was a marked departure from the all-time highs (ATH) of 97% observed at the end of 2022.
#BTC‘s rolling 30 days #correlation of #ETH fell below 80% this week for the first time since November 2021. pic.twitter.com/5DsXQAbexH
— Kaiko (@KaikoData) May 12, 2023
Is Shapella the reason?
As depicted, the correlation between the two cryptos has been declining since mid to late March. However, the gap widened after the highly anticipated Shapella upgrade went live in April, bringing with it some improvements unique to Ethereum.
Interestingly, a similar event in September 2022 known as the Merge, which initiated Ethereum’s transition to a proof-of-stake (PoS) blockchain, failed to create significant decoupling between the two assets. .
But the recent Shapella upgrade ended some of the key aspects of the transition that failed to make it to the Merge last year, positioning Ethereum as a full-fledged PoS network.
It is important to understand that both assets function very differently from each other.
While Ethereum is often used as a platform for the development of decentralized applications (dApps) and smart contracts, Bitcoin is primarily used as a store of value and means of payment.
Being a chain that hosts countless applications, the total value locked (TVL) on Ethereum was a whopping $27 billion at the time of writing. Bitcoin, on the other hand, had assets worth just $183 million.
Source: Artemis
What could be the implications?
According to an April 21 report from Coin base, a lower BTC-ETH correlation argues for portfolio diversification, as holding both assets can result in higher returns. As far as institutional investors are concerned, the trend may affect their trading strategies, such as cross-hedging.
Read Ethereum (ETH) Price Forecast 2023-24
That being said, the recent price action of the two coins showed that both have moved on an almost identical wavelength. Earlier this week, BTC’s crash fueled by a false rumor sent ripples across the wider crypto market and ETH was not unscathed.
According to CoinMarketCap, BTC fell 8.48% over the past week, while Ethereum’s weekly losses amounted to 6.44%.
Source: Sentiment