Ethereum
Will the price of ether accelerate?
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After the SEC approved Ethereum ETFs on Thursday, March 23, Ether has yet to show signs of growth. For Bitcoin, it took almost a month after the ETF’s approval before the price was able to establish itself on a massive rise, hitting an all-time high of $73,738.00 on March 14.
In September 2022, Ethereum moved to Proof of Stake (PoS), a set of interconnected upgrades that made Ethereum more secure and sustainable. Proof of Stake replaces computing power with staking (making it less energy intensive) and replaces miners with validators, who stake their cryptocurrency holdings to enable the ability to create new blocks.
The growing popularity of Ether dApps is encouraging traders to diversify their portfolios. A closer look at the BTC/ETH correlation could hint at the possibility that Ethereum price is finally accelerating.
BTC/ETH correlation coefficient
BTC/ETH correlation refers to the price relationship between Bitcoin (BTC) and Ethereum (ETH), usually expressed in terms of BTC. For example, if the price of Bitcoin is $60,000 and Ethereum is $3,000, the ratio is 0.05, meaning it costs 0.05 BTC to buy one ETH. If the price of ETH increases faster than BTC, the ratio increases, indicating that it costs more to buy ETH.
Source: In the block
Another measure of this relationship is the correlation coefficient, ranging from -1 to 1. A coefficient of 1 indicates that BTC and ETH are moving in the same direction, -1 indicates that they are moving in opposite directions, and 0 means no correlation . For example, during periods of negative correlation, if the price of BTC rises, the price of ETH will fall, and vice versa.
Thus, the BTC/ETH correlation shows the price relationship between the two assets, while the correlation coefficient measures the movement of their prices relative to each other. Both metrics are crucial to trading the BTC/ETH correlation effectively.
Historical correlation
Historical data shows that Ethereum price tends to be higher during bull markets. For example, the price of ETH was above 0.05 BTC during the bull runs of 2018 and 2021. After 2021, the 0.05 BTC level has always served as a strong support region. Conversely, the 0.08 BTC level has provided significant resistance on three occasions.
During the BTC bull run, the correlation continued to grow, peaking on March 14 when BTC price hit an ATH.
Source: In the block
The chart indicates that Ethereum outperforms Bitcoin in bull markets and underperforms in bear markets. Although past performance does not guarantee future results, it provides valuable information for making more informed decisions.
A recent Coinbase report shows that the correlation between Bitcoin (BTC) and Ethereum (ETH) has been declining since the beginning of 2023, particularly after the hard fork of Ethereum in Shanghai (Shapella) on April 12, which allowed withdrawals of staked ether. This change reduced the 40-day rolling correlation from 0.95 to 0.82.
Historically, BTC and ETH have evolved together, but factors such as the growing adoption of Ethereum-based decentralized applications (dApps), the popularity of non-fungible tokens (NFTs), and Ethereum’s move to a proof-of-proof consensus participation (PoS) The mechanisms are causing the divergence.
Expectations from Ethereum ETFs
According to IntoTheBlock research, 95% of current ETH positions are now profitable, with their price increasing by 30% over the last seven days. This level of profitability has not been seen since November 2021, when ETH prices reached an all-time high.
There is minimal resistance to the volume of ETH purchased at prices above current levels. Specifically, 3.57 million ETH was purchased in the price range between $3,800 and $4,800, compared to 53.54 million ETH purchased between $2,160 and $2,650.
ETH whales have also started to make significant moves, following the increased chances of ETF approval. On Tuesday the 21st, ETH recorded an on-chain trading volume of $15.98 billion, the highest volume recorded since June 13, 2022.
Of the $15.98 billion in recorded trading volume, $14.33 billion came from trades exceeding $100,000, typically carried out by whales. This represents 90% of the total volume traded for that day. One might expect this trend to accelerate now that ETFs have actually been approved.
The approval of ETH ETFs marks a significant milestone in the acceptance of cryptocurrencies, likely influencing increased activity among ETH whales, as evidenced by recent high-volume transactions. The changing landscape, highlighted by significant on-chain transaction volumes, suggests growing institutional and investor confidence in Ethereum.
About the Author
Dan Burgin
Dan is an editor and writer with 12 years of experience in finance and emerging technologies, with a particular focus on crypto. Covering a wide range of topics, from fintech startups to AI, it provides an in-depth look at the current state of the crypto market, as well as insight into its potential for future disruption.