Bitcoin-ether correlation weakest since 2021

In September last year, Ethereum shifted from the PoW consensus mechanism of corroborating transactions to the PoS system

Bitcoin and ether, the leading cryptocurrencies in terms of market capitalisation, moved in tandem for much of 2022. That positive relationship has weakened in 2023, indicating an imminent change in the market.

As of Monday, the 30-day rolling correlation between changes in bitcoin and ether prices was 77 per cent, the least since 2021 and particularly weaker than 96 per cent seen two months ago, as per crypto data provider Kaiko.

Ether, in the past, has split from bitcoin for short periods. The current correlation weakening may be long-lasting, meaning bitcoin, the biggest and most liquid digital asset, may not anchor ether and the wider market anymore, as per Pulkit Goyal, VP of trading at OrBit Markets.

What we are observing could be the start of a long-term regime change. As Ethereum has moved from PoW (Proof-of-work) to PoS (Proof-of-stake), the economics of supply and demand underlying the two tokens will continue to part, Goyal told CoinDesk.

Bitcoin will strengthen its position as the “digital gold” or a blue-chip stock while Ether will be seen as a growth stock or an emerging market, he said.

Kaiko’s most recent weekly newsletter voiced a similar view, stating that bitcoin and ether appear to be growingly driven by divergent idiosyncratic factors.

In September last year, Ethereum, the biggest smart contract blockchain, shifted from the energy-intensive PoW consensus mechanism of corroborating transactions to the PoS system.

Bitcoin, in the meantime, continues to be a macro asset, taking hints from inflation figures and anticipated changes in fiat liquidity and holding on to its position as a protection against conventional finance. Bitcoin’s supply expansion pace is halved every four years via a programmed process known as mining reward halving. The fourth halving is scheduled for 2024.