In stock exchanges, the term ‘correlation’ refers to the phenomenon when the variation in the value of two or more stocks takes the same trend.
But in the cryptocurrency market, this association of variation can affect all assets at once, and this is what seems to have happened in early 2018, when the price of Bitcoin fell, the market capitalization of all Altcoins followed with a massive loss in value. Can we then say that the price of Ethereum and Bitcoin are correlated? This will be our topic of discussion on this article.
Opinion #1: The value of Bitcoin drives the market
Is Bitcoin the asset that influences the market the most? Cryptocurrency trading history seems to show that a change in the price of Bitcoin has generally always affected the exchange value of ETH, XRP and many other cryptocurrencies.
According to market analysts, it is natural for the price of BTC to influence the market and in particular, the value of ETH. Pierce Crosby, the managing director of trading platform TradingView, explains that the cryptocurrency market correlates with Bitcoin the same way the US stock market correlates with the dollar. Since BTC is the biggest store of value in the crypto market, Altcoins are then tied to its overall performance, he adds.
According to a report that was published by San Francisco Open Exchange about the volatility of cryptocurrencies, the correlation between the price change of BTC and ETH is more significant compared to the correlation of BTC with other Altcoins . This can be explained by the position of ETH as the cryptocurrency with the second largest market capitalization, and the price of Bitcoin being a kind of general sentiment barometer for investors in the crypto asset market.
Opinion #2: ETH does not follow BTC
On the other hand, is Ethereum correlated to Bitcoin in its variation in value as much as it would seem? Hasn’t ETH often shown a different trend?
According to one theory, since ETH and BTC are the two largest crypto assets by market value, and exhibit relatively convergent price stability, they then appear to possess, in view of buyers and traders, characteristics similar investments, hence similar price change trends over certain periods. This is shown by comparing the price graphs of the two assets on which we can see a strong correlation on certain parts, but also a certain divergence on others.
Can we therefore speak of coincidence? According to Su Zhu, CEO of hedge fund Three Arrows Capital, throughout the history of the cryptocurrency market, ETH and BTC have always shown some correlation in the first quarter of the year. Over each year, ETH shows an increase in value of almost 30% in a single month, while BTC has always experienced a decline over the same quarter. Additionally, Ethereum’s price rise has generally always occurred at the beginning of the year until June, which then goes in the direction of signaling coincidences in the market rather than correlated variations. .
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In a context marked by a multitude of variables that can affect the market situation of a cryptographic asset, it is rather complicated to affirm a direct and complete correlation between the value of BTC and ETH. In quite a while, Ethereum prices seem to really follow Bitcoin prices, but it also happens very often that the two values show divergence.
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