Will Ethereum price rise?

Ethereum is yet to show signs of growth after the SEC approved the Ethereum ETF on Thursday, March 23. In Bitcoin's case, it took almost a month for the price to skyrocket after the ETF was approved, hitting an all-time high of $73,738.00 on March 14.

In September 2022, Ethereum moved to Proof of Stake (PoS), a series of interconnected upgrades that make Ethereum more secure and sustainable. Proof of Stake replaces computing power with staking (consuming less energy) and replaces miners with validators, who activate the ability to create new blocks by staking their cryptocurrency holdings.

The growing popularity of Ether dApps is encouraging traders to diversify their portfolios, and a closer look at the BTC/ETH correlation suggests that Ethereum prices may finally see a rise.

BTC/ETH Correlation Coefficient

BTC/ETH correlation refers to the price relationship between Bitcoin (BTC) and Ethereum (ETH), usually expressed in BTC. For example, if the price of Bitcoin is $60,000 and the price of Ethereum is $3,000, the ratio is 0.05, meaning it takes 0.05 BTC to buy 1 ETH. If the price of ETH rises faster than BTC, the ratio will rise, indicating that it takes more BTC to buy ETH.

Another measure of this relationship is the correlation coefficient, which ranges from -1 to 1. A coefficient of 1 indicates that BTC and ETH move in the same direction, -1 means they move in opposite directions, and 0 means there is no correlation. For example, during periods of negative correlation, when the price of BTC rises, the price of ETH falls and vice versa.

Therefore, BTC/ETH correlation indicates the price relationship between two assets, while correlation coefficient measures how their prices move relative to one another. Both metrics are important to trade BTC/ETH correlation effectively.

Historical Correlation

Historical data shows that Ethereum tends to trade higher during bull markets. For example, during the 2018 and 2021 bull markets, the price of ETH was above 0.05 BTC. Since 2021, the 0.05 BTC level has consistently acted as a strong support area. Conversely, the 0.08 BTC level has acted as a major resistance three times.

During BTC’s bull market, the correlation steadily increased, peaking on March 14th when BTC price hit its all-time high.

The chart shows that Ethereum outperforms Bitcoin in bull markets and underperforms Bitcoin in bear markets. While past performance is no guarantee of future results, it provides valuable insight to make more informed decisions.

According to a recent Coinbase report, the correlation between Bitcoin (BTC) and Ethereum (ETH) has been declining since the beginning of 2023, especially since Ethereum's Shanghai (Shapella) hard fork on April 12, which allowed for withdrawals of staked Ether. The change caused the 40-day rolling correlation to decrease from 0.95 to 0.82.

Historically, BTC and ETH have moved together, but factors such as the increasing adoption of Ethereum-based decentralized applications (dApps), the popularity of non-fungible tokens (NFTs), and Ethereum's move to a proof-of-stake (PoS) consensus mechanism have driven a divergence.

Expectations for Ethereum ETF

According to research from IntoTheBlock, 95% of current ETH positions are profitable, with the price rising 30% over the past seven days. This level of profitability has not been observed since November 2021, when ETH prices surged to all-time highs.

There has been minimal resistance to the amount of ETH purchased above current levels. Specifically, 3.57 million ETH was purchased in the price range of $3,800 to $4,800, while 53.54 million ETH was purchased between $2,160 to $2,650.

ETH whales have also begun to make significant moves in light of the increased likelihood of ETF approval. On Tuesday, the 21st, ETH recorded $15.98 billion in on-chain trading volume, the highest since June 13, 2022.

Of the $15.98 billion in recorded trading volume, $14.33 billion was from trades over $100,000, typically conducted by whales. This represents 90% of the total trading volume on the day. Now that the ETF has been officially approved, this trend is expected to accelerate.

The approval of an ETH ETF marks a significant milestone in the cryptocurrency's acceptance and may influence increased ETH whale activity as reflected in the recent high volume trading. The changing landscape, backed by high on-chain trading volume, suggests growing institutional confidence in Ethereum.

About the Author

Dan Bergin