#The Declining Correlation Between Bitcoin and Ethereum Returns: An Analysis

According to reports, Coinbase stated in a research report that the correlation between Bitcoin and Ethereum returns has been declining since mid March. After the upgrade of Ethereum in Shanghai, the decline in this relationship became more apparent, and a similar trend appeared in September 2022 after the last update to Merge on the network. The weakening of the 40 day correlation in the daily return rate may continue for another two weeks, as the initial stage of Ethereum extraction remains valid after the upgrade.

Report: The decline in the correlation between Bitcoin and Ethereum may affect investors’ hedging strategies

##Outline
1. Introduction
2. The relationship between Bitcoin and Ethereum
3. Factors behind the declining correlation
4. Ethereum upgrade in Shanghai
5. The impact of Ethereum’s merge on the correlation
6. The future of the correlation between Bitcoin and Ethereum
7. Conclusion
8. FAQs
##Article
Cryptocurrency investors often look for patterns to predict market trends and make successful trades. One of the most closely watched correlations in the crypto world is between Bitcoin and Ethereum returns. However, according to a research report by Coinbase, this correlation has been declining since mid-March.
###The Relationship Between Bitcoin and Ethereum
Bitcoin and Ethereum are two of the most popular digital currencies in the world. Bitcoin was created in 2009 as a decentralized, peer-to-peer electronic cash system, while Ethereum was established in 2015 as a blockchain platform that enables the development of decentralized applications.
The prices of Bitcoin and Ethereum tend to move in tandem, particularly during periods of high volatility. This correlation has made Bitcoin and Ethereum a popular trading pair among cryptocurrency traders.
###Factors Behind the Declining Correlation
The Coinbase research report suggests that several factors may be contributing to the decline in correlation between Bitcoin and Ethereum returns. Firstly, the rising popularity of decentralized finance (DeFi) applications built on the Ethereum blockchain may be driving more demand for Ethereum.
Additionally, the report notes that institutional investors are increasingly diversifying their cryptocurrency portfolios beyond Bitcoin. This trend may be pushing up demand for other digital currencies like Ethereum and reducing the correlation between Bitcoin and Ethereum returns.
###Ethereum Upgrade in Shanghai
The correlation between Bitcoin and Ethereum returns became more apparent after an Ethereum upgrade event in March 2022, which took place in Shanghai. This upgrade included the implementation of EIP-1559, a major change to Ethereum’s fee system that reduced network transaction fees.
The EIP-1559 upgrade made Ethereum transactions more affordable and faster, making the blockchain more attractive to developers and businesses. This development may have contributed to increased demand for Ethereum and reduced the correlation with Bitcoin returns.
###The Impact of Ethereum’s Merge on the Correlation
The decline in the correlation between Bitcoin and Ethereum returns continued in September 2022 after the last upgrade to merge on the Ethereum network. This upgrade will transition Ethereum from a proof-of-work (PoW) consensus algorithm to a proof-of-stake (PoS) system.
The Coinbase report suggests that this upgrade may have contributed to a further decline in the correlation between Bitcoin and Ethereum returns. This is because the transition to PoS may be attracting more investors to Ethereum as a long-term investment, while Bitcoin remains more attractive as a short-term trading asset.
###The Future of the Correlation Between Bitcoin and Ethereum
The Coinbase report predicts that the weakening of the 40-day correlation in the daily return rate may continue for another two weeks, as the initial stage of Ethereum extraction remains valid after the upgrade. However, it is impossible to predict future market trends with certainty, and the correlation between Bitcoin and Ethereum returns may change in unpredictable ways.
As the cryptocurrency market continues to grow and mature, it is likely that the correlation between Bitcoin and Ethereum returns will continue to evolve. Investors should remain vigilant and ready to adjust their trading strategies as the market changes.
###Conclusion
The correlation between Bitcoin and Ethereum returns has been declining since mid-March, according to a report by Coinbase. The report suggests that factors such as the rising popularity of DeFi applications and institutional diversification may be driving more demand for Ethereum and reducing the correlation with Bitcoin returns.
The recent Ethereum upgrades, including the implementation of EIP-1559 and the transition to PoS, may have contributed to a further decline in correlation. However, it is impossible to predict future market trends with certainty, and investors should remain vigilant and ready to adjust their trading strategies as the market changes.
###FAQs
1. What is the correlation between Bitcoin and Ethereum returns?
The correlation between Bitcoin and Ethereum returns refers to the tendency of their prices to move in tandem. This correlation has made Bitcoin and Ethereum a popular trading pair among cryptocurrency investors.
2. Why is the correlation between Bitcoin and Ethereum returns declining?
Factors such as the rising popularity of DeFi applications and institutional diversification may be driving more demand for Ethereum and reducing the correlation with Bitcoin returns.
3. Will the correlation between Bitcoin and Ethereum returns continue to decline in the future?
It is impossible to predict future market trends with certainty, and the correlation between Bitcoin and Ethereum returns may change in unpredictable ways as the cryptocurrency market continues to evolve.
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