In a research report published by Coinbase, it noted that the correlation between Bitcoin (BTC) and Ethereum (ETH) returns has declined since mid-March, when BTC began to outperform in the face of the US banking crisis and increased regulatory scrutiny of non-Bitcoin digital assets.
Drop in Bitcoin-Ethereum Correlation Could Affect Crypto Investors' Hedging Strategies
From a fundamental perspective, the weak correlation supports his claims to hold both BTC and ETH, the report said.
The report stated that the decline in the relationship became more pronounced after the Shanghai upgrade of the Ethereum blockchain, also known as Shapella, and noted that a similar trend was seen after the previous update of the network, Merge, in September 2022.
The Shanghai upgrade was successfully completed on April 12, allowing validators to withdraw staked Etherum.
“The significance of this falling correlation for institutional investors is that it can influence quantitative strategies based on cross-hedging one asset for another,” analysts David Duong and Brian Cubellis wrote.
From a fundamental perspective, they noted, it "supports diversification arguments in favor of holding both BTC and ETH."
The report noted that the weakening in the 40-day correlation of daily returns could continue for another two weeks, as the first phase of Ethereum withdrawals following the upgrade is still in place.
Coinbase estimates that as of April 20, 73,000 Ethereums can be unlocked for partial withdrawals and 822,000 Ethereums for full withdrawals, which could take approximately 15 days.
*Not investment advice.
