Breaking: Coinbase warns crypto investors of potential impact on hedging strategies as Bitcoin-Ether correlation plummets

"Coinbase Research Report Reveals Decline in Correlation Between Bitcoin and Ether Amidst U.S. Banking Turmoil and Regulatory Scrutiny"

Coinbase, a cryptocurrency exchange, has reported that the correlation between Bitcoin (BTC) and Ether (ETH) returns has been decreasing since mid-March. This is due to BTC’s outperformance against the US banking turmoil and increased regulatory scrutiny of non-Bitcoin digital assets. The report revealed that the decline in the relationship became more pronounced following the successful completion of the Ethereum blockchain’s Shanghai upgrade, also known as Shapella, on April 12. The upgrade allows validators to withdraw staked Ether. The correlation’s weakening may continue for another two weeks, as the initial phase of Ether withdrawals following the upgrade is still in effect.

The report also stated that the decreasing correlation has implications for institutional investors who rely on quantitative strategies that use Ether as a hedge for less liquid altcoins or cross hedge one asset for the other. From a fundamental perspective, the report suggests that holding both BTC and ETH is favorable for diversification.

According to Coinbase’s estimates, an additional 73,000 Ether could be unlocked in partial withdrawals and 822,000 unlocked in full withdrawals as of April 20. The unlocking process may take about 15 days to complete.

The Ethereum network’s previous update, the Merge, also saw a similar trend in September 2022. The report’s authors, David Duong and Brian Cubellis, noted that the weakening correlation between BTC and ETH could have significant implications for investors.

The report’s findings come as the cryptocurrency market continues to experience volatility. The past few months have seen increased regulatory scrutiny and a crackdown on digital assets in several countries, including China and India. However, despite the market’s turbulence, cryptocurrencies have continued to gain popularity among investors.

The decreasing correlation between BTC and ETH is a significant development for the cryptocurrency market. It suggests that investors are starting to view digital assets as separate entities with unique characteristics and use cases. This is a positive sign for the long-term viability of cryptocurrencies as an asset class.

Overall, the report’s authors suggest that the declining correlation between BTC and ETH is a positive development for the cryptocurrency market. It supports the argument for diversification and highlights the unique characteristics of each digital asset. As the market continues to evolve, it will be interesting to see how investors respond to these developments and whether they will continue to view cryptocurrencies as a viable investment option.

Martin Reid

Martin Reid

Leave a Replay

Scroll to Top