Bitcoin And Ethereum Correlation At Staggering 97%, BTC Rally Incoming?

by James · March 31, 2023

As Q1 2023 Draws to a Close, Bitcoin and Ethereum Correlation Stands at a Staggering 97%, Trackers indicates.

The Bitcoin and Ethereum Price Correlation

Bitcoin and Ethereum are the world’s most valuable coins by market capitalization. Due to their first mover advantage, Bitcoin, the first blockchain network; and Ethereum, an older smart contract platform; their native currencies, BTC and ETH, are also the most liquid and increasingly correlated in price movements.

Bitcoin and Ethereum Prices March 31| Source: Binance On TradingView

At the time of writing As of March 31, trackers show that the average daily trading volumes for BTC and ETH trading volumes across various exchanges were $19.7 billion and $8.4 billion, respectively.

The two coins are also listed in almost all popular centralized cryptocurrency exchanges. Especially due to the smart contract capability of Bitcoin, the coin has been tokenized. Billions have been distributed on Ethereum and other smart contract platforms. There, BTC holders participate in DeFi and other activities not possible on Bitcoin’s mainnet.

That Bitcoin and Ethereum prices have moved in lockstep in recent months can be attributed to several factors. However, what stands out is that these coins are the most liquid in the space, with an active base that justifies their mega values. Their coins can also be quickly transported across exchanges without liquidity issues, which attracts macro investors.

Why the correlation?

Bitcoin has long been seen as a store of value and a medium of exchange. The coin has a limited total supply of 21 million, and over 90% has been mined.

Proponents believe that during a crisis in traditional finance, the coin can be a hedge. This was recently observed after the bank run in Silicon Valley Bank (SVB) and the closure of Signature Bank.

Moreover, crypto holders also prefer the coin when there are concerns in the industry. Days after the temporary decoupling of USDC, a stablecoin, Bitcoin prices rose.

Meanwhile, Ethereum is relatively liquid and is becoming deflationary, a reason why some of its supporters say that ETH, its native currency, would become “ultra sound money“better than BTC and gold.

“a large part of the Ethereum ecosystem wants ETH to be ultra money”pic.twitter.com/3MI2nDHaXe

— ultrasound money 🦇🔊 (@ultrasoundmoney) 5 July 2021

Aside from liquidity, Ethereum is the largest and most active smart contract platform. DeFiLlama data shows that over 50% of DeFi’s total value locked (TVL) is in Ethereum-based dapps.

The correlation may continue to rise in the months ahead as crypto gains mainstream adoption. Macro investors will most likely gravitate to BTC and ETH, accumulating them as risk assets when diversifying their portfolios.

Regulatory clarity, with the chairman of the United States Security and Exchange Commission (SEC) saying that Bitcoin is a commodity, while the Commodity Futures Trading Commission (CFTC), in a lawsuit against Binance and its CEO, Changpeng Zhao, which also classifies ETH as an item, can further increase this connection.