Jannat Ara

Bitcoin and Ethereum Correlation Hits Lowest Level Since 2021 Amid Market Downturn

Kaiko Research has reported that the correlation between Bitcoin and Ethereum has fallen below its historical average of 0.71, marking the lowest level since 2021. This divergence comes against the backdrop of a broader market decline, with both BTC and ETH prices experiencing nearly a 6% decrease over the past week, currently standing at $40,991 and $2,463, respectively.

The traditional narrative has been one of a strong correlation between Bitcoin and Ethereum in their market movements. However, the recent departure from this trend raises questions about Ethereum’s potential trajectory, particularly as it has seen a surge in trade volume without corresponding signs of a rally in the derivatives market. This contrasts sharply with Bitcoin, which experienced significant growth in anticipation of ETF approvals.

Looking at Bitcoin’s recent performance, it has delivered an impressive 100% return over the past year, outpacing Ethereum’s gains of 60%. The approval of spot Bitcoin ETFs marked a crucial juncture; Bitcoin prices dipped, while Ethereum saw a rally driven by speculation that it might be the next to receive ETF approval.

Previously, investor attention was focused on “ETH beta” tokens like Optimism (OP) and Arbitrum (ARB), closely tied to Ethereum but exhibiting higher volatility. However, following the ETF approval, this trend reversed, with beta tokens experiencing a decline and Ethereum showing relative resilience by registering a smaller decline.

The current landscape underscores the evolving dynamics between Bitcoin and Ethereum. While Bitcoin’s ETF journey enhanced its market presence, Ethereum’s path appears less certain. The reduced correlation with Bitcoin suggests a potential for independent market behavior. Yet, uncertainties arise due to the lack of traditional rally indicators in derivatives markets and the shift away from ETH beta tokens post-BTC ETF approval.

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