The correlation between Bitcoin and Ethereum has dropped to its lowest level in the past 60 days, reaching as low as 75%. There is a significant deviation from the all-time high (ATH) levels of 97% seen at the end of 2022. Since November, a sharp decline has been observed in the parity, which is believed to be caused by the increase in spot ETH exchange-traded fund (ETF) investments.
It is stated that the overall upward trend in the market is driven by the excitement about the potential approval of spot Bitcoin ETFs. With the rally that started in mid-October, Bitcoin gained 26% by the end of the month, while Ethereum lagged behind with a 17% increase. Announcements of spot ETH ETFs by TradFi giants like BlackRock and Fidelity reversed the situation for Ethereum in November, and the second largest cryptocurrency surpassed the critical $2000 level for the first time since May 2022.
According to Coinbase’s report dated April 21st, the low correlation between BTC and ETH creates a reason for portfolio diversification. It is stated that holding both assets in the portfolio can lead to higher returns. Analysts emphasize the importance of diversifying investments into different cryptocurrencies and reducing associated risks with any specific category.
On the other hand, this trend may affect trading strategies such as cross-risk hedging for institutional investors. Cross-risk hedging involves investing in two cryptocurrencies with similar but not fully correlated price movements to implement risk management. However, analysts and investors should not consider these as investment advice and should exercise necessary caution.