After the U.S. Securities and Exchange Commission approved the Ethereum ETF on Thursday, March 23, there has been no sign of growth in Ethereum. For Bitcoin, it took nearly a month after the ETF approval for the price to start rising significantly, reaching a historic high of $73,738.00 on March 14.
In September 2022, Ethereum transitioned to Proof of Stake (PoS), a series of interconnected upgrades that make Ethereum more secure and sustainable. Proof of Stake replaces computational power with staking (reducing its energy intensity) and miners with validators, who stake their cryptocurrency assets to activate the ability to create new blocks.
The increasing popularity of Ethereum dApps has prompted traders to diversify their investment portfolios. Careful observation of the BTC/ETH correlation may suggest the possibility of Ethereum's price eventually accelerating.
BTC/ETH Correlation
BTC/ETH correlation refers to the price relationship between Bitcoin and ETH. For example, if the price of Bitcoin is $60,000 and the price of Ethereum is $3,000, the ratio is 0.05, meaning that it takes 0.05 BTC to purchase one ETH. If the price of ETH rises faster than BTC, the ratio will increase, indicating that more BTC is needed to purchase ETH.
This relationship is also measured by the correlation coefficient, which ranges from -1 to 1. A coefficient of 1 indicates that BTC and ETH move in the same direction, -1 indicates they move in opposite directions, and 0 indicates no correlation. For example, during a negative correlation period, if the price of BTC rises, the price of ETH will fall, and vice versa.
Therefore, BTC/ETH correlation shows the price relationship between the two assets, while the correlation coefficient measures their relative price movements. Both of these indicators are crucial for effectively trading BTC/ETH correlation.
Historical Correlation
Historical data shows that during bull markets, the price of Ethereum is often higher. For example, during bull markets in 2018 and 2021, the price of ETH was higher than 0.05 BTC. Since 2021, the 0.05 BTC level has been a strong support area. Conversely, the 0.08 BTC level has acted as an important resistance level on three different occasions.
During BTC bull markets, the correlation has been steadily increasing and peaked on March 14, when the price of BTC reached its all-time high.
The chart shows that during bull markets, Ethereum outperforms Bitcoin, while during bear markets, Ethereum's performance lags behind Bitcoin. Although past performance does not guarantee future results, it provides valuable insights for making wiser decisions.
Since the Shapella hard fork of Ethereum in early 2023, the 40-day correlation has decreased from 0.95 to 0.82.
Historically, BTC and ETH have been moving on the same track, but factors such as the increasing popularity of decentralized applications (dApps) on Ethereum, the popularity of non-fungible tokens (NFTs), and Ethereum's transition to the Proof of Stake (PoS) consensus mechanism are driving their differentiation.
Expectations for Ethereum ETF
Currently, 95% of ETH positions are in a profitable state, and its price has risen by 30% in the past seven days. Since ETH surged to its all-time high in November 2021, this level of profitability has not been seen before.
At price levels higher than the current level, the purchase of ETH has encountered almost no resistance. Specifically, 3.57 million ETH were purchased in the price range of $3,800 to $4,800, while 53.54 million ETH were purchased in the range of $2,160 to $2,650.
As the probability of ETF approval increased, ETH whales also began to make significant moves. On Tuesday, the 21st, the on-chain trading volume of ETH reached $15.98 billion, the highest since June 13, 2022.
Of the recorded $15.98 billion in trading volume, $14.33 billion came from transactions exceeding $100,000, typically conducted by whales. This accounted for 90% of the total trading volume that day. With the ETF now approved, this trend is expected to accelerate.
The approval of the ETH ETF marks an important milestone in the acceptance of cryptocurrencies, which may impact the activity of ETH whales, as reflected in the recent high volume of trades. The evolving landscape, coupled with the significant on-chain trading volume, indicates increasing confidence in Ethereum from institutions and investors.
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