Declining Bitcoin-Ether Correlation Could Affect Crypto Investors’ Hedging Strategies: Coinbase

From a fundamental perspective, the weaker correlation supports diversification arguments in favor of holding both BTC and ETH, the exchange said.

AccessTimeIconApr 24, 2023 at 7:38 a.m. UTC
Updated Apr 24, 2023 at 2:21 p.m. UTC
10 Years of Decentralizing the Future
May 29-31, 2024 - Austin, TexasThe biggest and most established global hub for everything crypto, blockchain and Web3.Register Now

The correlation between bitcoin (BTC) and ether (ETH) returns has been declining since mid-March, when bitcoin started outperforming against the backdrop of the U.S. banking turmoil and increased regulatory scrutiny of non-bitcoin digital assets, crypto exchange Coinbase said in a research report Friday.

The decline in the correlation has become more pronounced following the Ethereum blockchain’s Shanghai upgrade – aka Shapella, the report said, noting that a similar trend was seen in September 2022 following the network’s previous update, the Merge.

The Shanghai upgrade, which was successfully completed on April 12, enables validators to withdraw staked ether.

“The relevance of this falling correlation for institutional investors is that it can affect quantitative strategies that rely on cross hedging one asset for the other (or using ETH as a hedge for less liquid altcoins),” analysts David Duong and Brian Cubellis wrote.

From a fundamental perspective “it supports diversification arguments in favor of holding both BTC and ETH,” they wrote.

The weakening in the 40-day correlation of daily returns may continue for another two weeks because the initial phase of ether withdrawals following the upgrade is still in effect, the note said.

Coinbase estimates that as of April 20 an additional 73,000 ether could be unlocked in partial withdrawals and 822,000 unlocked in full withdrawals and that could take about 15 days to process.

Edited by Sheldon Reback.

Disclosure

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk offers all employees above a certain salary threshold, including journalists, stock options in the Bullish group as part of their compensation.

Author placeholder image

Will Canny is CoinDesk's finance reporter.


Learn more about Consensus 2024, CoinDesk's longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.