Ethereum Price Tied More to Bitcoin Than Fundamentals, Says Bitwise
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In a recent analysis, Bitwise has drawn attention to a surprising trend regarding Ethereum’s price, suggesting it remains closely linked to Bitcoin rather than its inherent fundamentals. The asset management firm has indicated that since 2018, Bitcoin has been a significant influence on Ethereum’s weekly returns, overshadowing the network’s actual developments and metrics.
According to their comprehensive study utilizing 406 weekly observations, Bitcoin accounts for approximately 65% of Ethereum’s return variations. Bitwise has reported that the correlation between the two currencies is strikingly high, with ETH’s movements closely mirroring those of BTC almost one-to-one on a weekly basis, reflected by a coefficient near 0.99.
This observation challenges several common assumptions about Ethereum’s performance. Despite advancements in regulatory clarity and increased institutional engagement, the price of ETH is currently about 62% lower than its historical peak. The data suggests that while Ethereum plays a significant role in the world of stablecoins and tokenized assets, these elements do not seem to influence its pricing as previously thought.
Bitwise’s report also detailed other factors that might affect Ethereum’s value. Financial conditions, primarily gauged through the Bloomberg US Financial Conditions Index, were found to be the second most influential variable, contributing about 11.3% to the explanatory power of ETH returns. Though this percentage increased during peak market times, it still paled in comparison to Bitcoin’s dominance.
Interestingly, the analysis highlighted the effects of ETF flows on Ethereum’s price. While the coefficient for ETF flows was relatively modest at around 0.01, Bitwise stated that they remain significant, accounting for approximately 10% of ETH’s variations on average, escalating to about 40% during peak activity.
Throughout different market conditions, the influence of Bitcoin has shown to be even more pronounced. Notably, during the volatile period following the FTX collapse in late 2022, Bitcoin was responsible for nearly 90% of the returns, while other factors contributed negatively.
Though some moments, such as in May 2021, showed lower sensitivity to Bitcoin when Ethereum surged due to growing NFT activity, these instances appear to be more the exception than the norm. Bitwise’s findings suggest that the more intricate frameworks developed for short-term price forecasting do not outperform simpler models based primarily on Bitcoin exposure.
As a result, Ethereum finds itself in a complicated situation: it boasts significant institutional interest and continues to have a major share of market activity, yet its price trajectory largely depends on Bitcoin’s movements. At the time of reporting, Ethereum was being traded at $2,305, reflecting its ongoing struggle to break free from Bitcoin’s shadow.
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Gregory Russell
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