Price Action

Bitcoin and ether both declined in price Friday, while the correlation between the two assets moderated slightly.

  • Bitcoin (BTC) recently declined 0.42% on moderate daily volume. Overnight prices traded in a tight range between $19,500 and $19,800. Prices declined 0.85% as U.S. markets opened around 9:30 a.m. ET before reversing course during the next hour.
  • Ether (ETH) fell 3% on Friday, marking the fifth decline within the last six trading days. Trading volume for the second-largest cryptocurrency by market cap after bitcoin aligned with its average daily volume over the most recent 20 days.

The 30-day correlation coefficient between BTC and ETH declined to 0.77, its lowest level since June 12. The correlation coefficient measures the relationship of price movement between two assets, and ranges between 1 and -1.

A correlation of 1 implies a direct relationship between assets, while a correlation of -1 signals an inverse relationship. A declining correlation, as is the case here, represents a diminishing relationship.

For some traders, a weakening relationship can signal a fundamental change between two assets, causing the traders to reevaluate their investment strategy. For others, it may represent a short-term dislocation in price that can be exploited upon expectations that the correlation will again strengthen.

Economic Calendar: Economic data was relatively light Friday.

The University of Michigan’s Consumer Sentiment index, which measures consumers’ view of economic growth, rose to a five-month high of 59.5 in September. Consumers’ one-year expectations for inflation declined to 4.6% from 4.8%, 45% below the current inflation rate of 8.3%.

Whether in line with reality or not, inflation expectations are important in that if consumers expect prices to rise, they’re more likely to purchase items immediately rather than wait. The effect of this often results in higher prices as increased demand chases supply.

U.S. Equities: Traditional equities declined, with the Dow Jones Industrial Average (DJIA), tech-heavy Nasdaq composite and S&P 500 down 0.5%, 1.1% and 0.8%, respectively.

Commodities: Crude oil traded 0.24% lower, while natural gas fell 6.1%. Copper futures increased 1.3%, while gold’s price increased 0.4%.

The Dollar Index (DXY) was flat, rising 0.08%

The CoinDesk Market Index (CMI), a broad-based market index to measure the performance across a basket of currencies, declined 0.97%.

Latest Prices

Bitcoin (BTC): $19,621 −0.9%

Ether (ETH): $1,434 −4.4%

CoinDesk Market Index (CMI): $974 −1.4%

S&P 500 daily close: 3,873.24 −0.7%

Gold: $1,684 per troy ounce +1.1%

Ten-year Treasury yield daily close: 3.45% −0.01

Bitcoin, ether and gold prices are taken at approximately 4pm New York time. Bitcoin is the CoinDesk Bitcoin Price Index (XBX); Ether is the CoinDesk Ether Price Index (ETX); Gold is the COMEX spot price. Information about CoinDesk Indices can be found at coindesk.com/indices.

Technical Take

Ether outpaces bitcoin to the downside as the relationship between the two assets weakens.

ETH fell 3% on Friday, with the price declining 15% over the last seven days. BTC, by comparison, declined 0.80%, with a seven- day performance of -3%. BTC and ETH are down 59% and 60% in value for the year to date, respectively.

The recent divergence in performance is illustrated in the decline in the two assets’ correlation coefficient to 0.77. ETH has been outperforming BTC for months, and the ETH/BTC trading pair rose 53% between July and September.

Since a peak on Sept 8, the ETH/BTC pair has declined 14%. Much of this may be a byproduct of the “sell-the-fact” impact of the Ethereum Merge, the upgrading of the blockchain, which took place early Thursday. With 180- and 365-day correlations of 0.96 and 0.97 respectively, investors could be expecting the relationship between BTC and ETH to strengthen again.

There are fundamental arguments as to why the correlation between the two assets should diminish. Ethereum’s conversion to a proof-of-stake consensus mechanism puts in place a distinctly different method of securing the network than exists with Bitcoin.

The ability for ETH holders to stake their assets allows ETH to be used both as a store of value as well as a means to generate cash flow. A potential result is that staking yields may have an increased impact on the demand for ETH in both spot and futures markets. That distinction alone may change the way traders view the assets, though the extent to which they do remains to be seen.

Investors are also likely to pay greater attention to ETH’s supply growth. As stated in Thursday’s Market Wrap, the post-Merge supply of ETH declined by approximately 254 ETH as of 18:20 UTC. Today’s supply of ETH shows a post-Merge increase of approximately 395 ETH. For proper context however, estimates are that ETH’s supply would have increased by more than 20,000 as of today, had the Merge not occurred.

On a technical basis, ETH is approaching “oversold” levels when using the Relative Strength Index (RSI) indicator. RSI measures price momentum, which signals if an asset is potentially overbought (readings above 70), or oversold (readings below 30). With an RSI of 34, ETH is approaching levels where traders may wish to gain exposure.

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Altcoin Roundup

  • Ethereum Merge Has Tied Ether Futures Activity to Staking Yields, Traders Say: Stakers have been and will be natural sellers in futures and perpetual futures and the hedging activity will increase as staking yields rise. Read more here.
  • Ethereum Proof-of-Work Network Sees Complaints on Day 1 Amid Data Goof-Up: Users said they weren't able to access the blockchain's servers using the public information and attempts to link it to a crypto wallet failed. Read more here.
  • Ethereum Miner Chandler Guo Predicts 90% of PoW Miners Will Go Bankrupt: The Merge put a big hurt on mining, the proof-of-work (PoW) advocate told CoinDesk TV. He believes the Ethereum fork he backs will draw what miners remain as the glitches are fixed. Read more here.

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