Ethereum-Bitcoin correlation continues to be consistently inconsistent
The relationship between Bitcoin and Ethereum has always been an intriguing one. They are, undoubtedly, two of the market’s most important crypto-assets due to their dominance in the space. Although Ethereum is quite far behind in terms of market cap, in terms of technology, may argue that the altcoin is miles ahead. Owing to the many debates between the two camps, the correlation between ETH-BTC has been discussed a lot lately.
From the attached charts, it can be observed that Bitcoin’s 1-month correlation recently nosedived from 93 percent on 21 July to 58 percent on 2 August. In a similar fashion, Ether’s value with respect to Bitcoin also reached a yearly-high of 3.3 percent, the metric’s highest point since June 2019
While many (Most ETH bulls) are suggestive of the fact that it is positive for Ethereum to detach from Bitcoin, on further analysis, it can be understood that the ETH-BTC correlation is not extremely reliable when it comes to identifying patterns or trends.
A consistently inconsistent tale
From the attached chart, it can be observed that periods of correlation have been marked by a set of ellipses. Each period has its own significance. The first ellipse (blue) marked a period of time when Bitcoin’s valued spiked from $5,000 to a whopping $13,800 in April-June 2019. During that same period, the correlation between ETH and BTC dropped from 0.879 to 0.833.
The 2nd ellipse (red) marked a period when the correlation factor improved from 0.76 to 0.82, but the price movements registered by both crypto-assets were minimal and mostly downwards.
The 3rd ellipse (black) is particularly intriguing because it encapsulates a strong bullish rally from 2 January 2020 to 13 February 2020, with the ETH-BTC correlation heading from 0.826 to 0.851. While a massive collapse followed in March, the correlation continued to rise, topping at 0.901 in April when the market started to recover.
The 4th ellipse (green) consists of the current bullish rally, one that is undoubtedly the strongest rally seen in a while from Bitcoin and Ethereum’s point of view. The correlation has again seemed to decline from 0.901 to 0.881.
The pattern is pretty clear here, one that suggests that the correlation between BTC-ETH has hardly stuck to one trend over the past two years, jostling between both the bullish and bearish market.
Now, Ethereum’s recent decoupling from Bitcoin could be due to the fact that the asset breached its 2019-high. The same hasn’t been the case for Bitcoin.
Therefore, the correlation between digital assets is definitely an important metric, but its relevancy with a particular trend or rally continues to swing both ways.