Bitcoin and Ethereum correlation plunges to lowest since 2021

Kaiko Research highlighted that the correlation between Bitcoin and Ethereum has dropped below its average of 0.71 for the first time since 2021. 

This development comes amidst a broader market downturn, with BTC and ETH prices falling nearly 6% over the past week, currently at $40,991 and $2,463, respectively.

Historically, BTC and ETH have demonstrated a strong correlation in their market movements. However, the recent divergence raises questions about Ethereum’s future trajectory, especially in light of its trade volume surge without corresponding signs of a rally in the derivatives market. This phenomenon contrasts sharply with the BTC market, which saw significant growth in anticipation of ETF approvals.

Reflecting on Bitcoin’s past, it’s observed that BTC exhibited a remarkable 100% return over the past year, overshadowing Ethereum’s 60% gains. The approval of spot Bitcoin ETFs marked a pivotal moment; BTC prices dipped while ETH experienced a rally, fueled by speculation that it might be the next to receive ETF approval. 

Investors had previously focused on “ETH beta” tokens, like Optimism (OP) and Arbitrum (ARB), which are closely linked to Ethereum but with higher volatility. However, after ETF approval, this trend saw a reversal, with these beta tokens experiencing a slump and ETH showing relative resilience by registering the smallest decline.

The current scenario underscores the evolving dynamics between Bitcoin and Ethereum. While BTC’s ETF journey catalyzed its market presence, Ethereum’s path appears less clear. Its reduced correlation with Bitcoin suggests a potential for independent market behavior. Yet, the lack of traditional rally indicators in derivatives markets and the shift away from ETH beta tokens post-BTC ETF approval inject uncertainty.