Bitcoin And Ethereum Break Up — The Crypto Love Story Ends?

The relationship between Bitcoin BTC/USD and Ethereum ETH/USD, the two largest cryptocurrencies by market cap, is undergoing a significant shift, as their price correlation slipped below 80% for the first time since November 2021.

Data from Kaiko, a leading analytics firm, revealed the rolling 30-day correlation of Bitcoin and Ethereum recently descended to approximately 78%.

In simple terms, correlation quantified how the prices of two assets moved in tandem.

A lower correlation implied the prices of these assets were diverging more frequently, suggesting the price movements of Bitcoin and Ethereum were no longer as tightly linked as they previously were.

Several elements could be contributing to this alteration in correlation.

A study by Coinbase found the correlation between Bitcoin and Ethereum started to decline from mid-to-late March, with Bitcoin outshining other cryptocurrencies amidst the U.S. banking sector upheaval and increased regulatory focus on non-Bitcoin digital assets.

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The decoupling of Bitcoin and Ethereum was more evident in the days following the Shanghai (Shapella) fork, mirroring a similar pattern seen during the Merge in September 2022, when Ethereum switched to a proof-of-stake consensus mechanism.

Noting this pattern, Coinbase suggested market volatility and investor behavior could be among the driving forces.

In theory, a declining correlation between two assets bolstered the argument for portfolio diversification.

Investors holding both Bitcoin and Ethereum might stand to gain from this lower correlation, as it could potentially mitigate overall portfolio risk.

Additionally, this decoupling could signal these cryptocurrencies are carving out independent paths, opening up new avenues for investors to capitalize on their differing performances.

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