Bitcoin and Ethereum’s Correlation in Price Might Come to An End
Since Bitcoin’s inception, it has been pegged to Ethereum. Most recently since 2018, they have been working in tandem and in so doing, creating more risk for investors who have a more crypto healthy portfolio. However, there may be some good news ahead as it seems that the correlation between Bitcoin (BTC) and Ethereum (ETH) may be coming to an end.
An automobile dealer from India named Anish Sexana made remarkable profits during the coronavirus pandemic amidst a torrid time for his business because of the lockdowns.
Anish was quoted saying in an interview:
“I had known about Bitcoin and Ethereum and dozens of other assets for years, but I only got to invest in them after the lockdown pushed me and my family members out of work. And it helped us survive — big time.”
Furthermore, Anish divulged that he had allocated around 80% of his investment portfolio to BTC and ETH while the other 20% was split between Dogecoin, Polygon, and Chainlink’s LINK cryptocurrency. He also states that the cryptocurrencies crash in May almost devastated his portfolio hadn’t he liquidated his cryptocurrencies for cash prior to the collapse.
The correlation risk for retail traders
There is a high risk for retail traders who over-rely on the two biggest cryptocurrencies in their portfolio namely Bitcoin and Ethereum. These two cryptocurrencies may have different use cases and economics, however, they tend to move in the same direction when examining the crypto charts. This is great when there is a bull run but when there’s a downturn it can be devastating to cryptocurrency investors.
Liam Bussell, head of corporate communications at fiat-to-crypto gateway provider Banxa, argues that the top two cryptocurrency markets — Bitcoin and Ethereum — are good liquidity backstops for crypto traders. He also notes that mid or low capitalization projects stand to thrive. Investors can protect themselves by diversifying their investments with stocks, commodities, and fixed-income securities/funds.
Decoupling ahead for the giant cryptos
The Ethereum 2.0 transition from proof-of-work to proof-of-stake might make the correlation between the price of Bitcoin and Ethereum come to end. A new Ethereum Improvement Proposal (EIP) will lower the number of transaction fees collected via the platform. However, there could be some drawbacks to this. As a result, 1 million ETH will be eliminated from circulation each year- so it’s safe to say that ETH will become less common in the crypto market as time progresses.
On the other hand Bitcoin halves the amount of new bitcoins it creates every four years, a process called halving. The maximum supply for bitcoin is 21 million tokens.
To wrap things up
Bitcoin and Ethereum have been pegged together since the inception of Ethereum. The latest transition for Ethereum to Ethereum 2.0 might see some big changes in the correlation of the prices between the cryptocurrency giants. This will mean cryptocurrency investors will not have to cope with big losses if there is a downturn in the cryptocurrency market. These are interesting times for cryptocurrency and being an investor can be lucrative if you take advantage of all the information out there.
Source: Cointelegraph news