Truth About Crypto Price Correlation: How Closely Does ETH Follow BTC?

The results of research conducted by analysts from Skew in November 2019 showed that ETH had been the highest-correlated cryptocurrency to BTC for two years running, with an average correlation coefficient of 0.9.

ETH was the highest correlated asset in 2019, as reported by the Binance research team on Jan. 22, 2020.If this is the case, is it worth relying on correlation when buying cryptocurrencies? Could ETH be less correlated to BTC than is commonly believed? To find the answer, Cointelegraph analyzed the cryptocurrency charts for the past three years and talked to experts with opposing views on the matter.

According to the latest report on cryptocurrency volatility, published by San Francisco Open Exchange, the current correlation between the performance of BTC and ETH is significantly higher than the correlation between the values of BTC and other altcoins.

Michaël van de Poppe, a cryptocurrency market analyst and trader at the Amsterdam Stock Exchange, told Cointelegraph that Ether will always have some correlation to Bitcoin, as "Bitcoin is the king and usually the rest will follow in the market." He compared this correlation with the commodities markets, where gold is the leading asset, its price changes followed by other metals.

If it changes due to systemic factors affecting the market - for example, increased volatility in traditional markets or a change in cryptocurrency regulation - the ETH rate may change in the same direction as that of BTC.Opinion #2: ETH does not follow BTCOn the other hand, if there is an event that turns out to be a specific influencing factor for BTC price - for example, the United States Securities and Exchange Commission rejecting to accredit an exchange-traded fund application - the correlation may become negative, and ETH may increase in price amid the falling BTC rate.

A positive correlation, such as the current correlation between BTC and ETH, suggests that if the price of Bitcoin grows significantly, ETH can also increase in its value over the same period of time.

Such results were proven by the analysis of 14 significant changes in the price of BTC and ETH that occured in the period from June 2017 to December 2019, when their correlation coefficient varied from 0.26 to 0.89.

The observation showed that in five out of 14 cases, the ETH price repeated the behavior of BTC - while in four cases, the correlation was negative.

Zhu also pointed to the fact that throughout the cryptocurrency market's history, the first quarter of the year has always shown an interesting correlation between ETH and BTC. Each year, ETH demonstrated a 30% increase in price within one month, while BTC always decreased over the same period of time.

The possible reason for that change might be not a very successful year for the Ethereum network - particularly the team's failure to release the full version of Ethereum 2.0.However, researchers at San Francisco Open Exchange suggest that, in general, the high correlation of ETH may not suggest its dependence from BTC, but rather the fact that the Ethereum blockchain has received more recognition, and the price of ETH as an independent asset was significant compared to other altcoins.