The correlation between bitcoin (BTC) and ether (ETH), has decreased to historically low levels, marking a notable divergence in their price trajectories.
This change occurs after the approval of spot bitcoin exchange-traded funds (ETFs), which had a differentiated impact on the two main crypto assets in the market , according to an analysis by the Kaiko firm.
As seen in the following graph, the correlation between both assets fell below its historical average of 0.71, something that has not happened since 2021.
Correlation between ETH and BTC. Source: Kaiko.
“For months, the two crypto assets have diverged in price activity, as BTC benefited from spot ETF hype and speculation , while ETH saw a relatively slow rally,” the report details.
ETH was the one that had the best result after the approval of financial instruments based on bitcoin, on January 10. At that time, the Ethereum cryptocurrency soared 22% .
The bullish catalyst for ETH was generated by excitement over the possibility of ether spot ETFs being the next to be approved in the United States. This is because the SEC considers both bitcoin and ether to be commodities (and not securities ).
The creation of ether-based spot ETFs could mean a significant increase in the cryptocurrency's visibility and accessibility in mainstream financial markets, as well as its price.
For Kaiko, another factor that marked the drop in the correlation between ETH and BTC was evident in the spot volume of ETH on centralized exchanges last week. This reached its highest point since the FTX collapse, highlighting a preference for ETH over other altcoins, as can be seen in the following graph.
Additionally, the three days of highest ETH spot volume since March 2023 were recorded, suggesting growing interest in the cryptocurrency. "Last week had the three days of highest ETH spot volume since early 2023; "January 10, 11 and 12 had significantly higher volumes than any day last year," the analysis details.
The correlation between ETH and BTC has reached “multi-year lows” as both assets mature and develop “their own narratives.” Although ETFs were a crucial narrative for BTC, it remains to be seen if ETH funds will be able to replicate this success. If not, Ethereum still has several narratives that can support its performance in the future, such as layer 2 developments and staking.
