Ethereum and Bitcoin Decouple Following Spot ETH ETFs Launch
Ethereum Decouples from Bitcoin: An Examination of Causes
Ethereum, one of the most well-known cryptocurrencies alongside Bitcoin, seems to be breaking away from its big brother. The correlation between Ethereum (ETH) and Bitcoin (BTC) dropped to 75% in November, a significant decrease compared to the 97% in November 2022, as data from crypto market data provider Kaiko shows.
ETH ETF Launches as Possible Cause
The decoupling of Ethereum and Bitcoin is likely due to an increase in spot ETH ETF launches. ETFs, or Exchange Traded Funds, are investment funds that are traded on the stock exchange and allow investors to invest in an entire market or sector instead of individual stocks or assets.
The Impact on the Market
The general market sentiment was led by the excitement over the probable approval of about a dozen spot Bitcoin ETF applications. This led to a rally in mid-October, where BTC recorded gains of 26% by the end of the month. Ethereum, on the other hand, couldn’t quite keep up with this pace and ended October with a gain of 17%.
Ethereum’s Reaction to its Own Developments
However, the announcement of spot ETH ETFs by TradFi giants such as BlackRock and Fidelity led to a turnaround for Ethereum in November. The second largest cryptocurrency jumped above the crucial $2,000 mark for the first time since May 2022. This shows that Ethereum responds more strongly to developments in its own ecosystem, rather than just feeling the effects of Bitcoin.
What Does this Mean for Investors?
According to a report by Coinbase from April 21, the lower BTC-ETH correlation makes portfolio diversification more attractive, as holding both assets can lead to higher returns. Smart investors spread their investments across different cryptocurrencies to reduce their risk.
For institutional investors, this trend could influence their trading strategies, such as cross-hedging. Cross-hedging is a risk management practice where investments are made in two assets that have similar price movements, but are not perfectly correlated.
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However, it’s important to emphasize that this information should not be understood as investment advice and every investor should conduct their own due diligence.
Sources: Kaiko, Coinbase
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