Bitcoin's Correlation with Ethereum Is Breaking Down: What Does It Mean?

According to data from Kaiko, Bitcoin's 60-day correlation with Ethereum has fallen below 70%. The weakening correlation comes amid speculation that potential spot Ethereum ETF approvals are in the pipeline following the launch of spot Bitcoin ETFs in the United States. This development marks a significant shift in the relationship between the two largest cryptocurrencies.

Bitcoin's correlation with Ethereum drops below 0.7

According to data from Kaiko Research, the last time the metric fell below this level was in early 2021. At that time, Bitcoin had broken its all-time high. In measures of correlation between assets, a value of 1 (100%) represents a perfect positive correlation. This means that the entities are moving in exactly the same direction and of the same size. On the other hand, a value of 0 (0%) indicates that there is no correlation. Also, a value of -1 (-100%) means that assets of the same magnitude are moving in opposite directions. So, in this case, a drop below 70% means that the prices of assets are not moving in sync as much as they have for the past few years.

Bitcoin correlation with Ethereum. Source: Kaiko Research.### Will the spot Ethereum ETF hype trigger a reversal?

The decline in correlation follows the launch of spot Bitcoin ETFs in the U.S. last week. Speculation that the SEC's potential spot ETH ETF approvals are in the pipeline has put the spotlight on the leading altcoin. Kaiko makes the following assessment on this subject:

It's no coincidence that this happened on the same day that Bitcoin spot ETFs began trading. The two crypto assets have been diverging in price activity for months, as BTC has benefited from ETF hype and speculation ETH has experienced a relatively sluggish rally. Since the Merge, Ethereum has had a number of narratives, such as ETFs with deflation and ultra money, Layer 2s, liquid staking derivatives, re-staking, and now danksharding on the horizon. Despite all these competing narratives, the potential approval of spot ETFs appears to be the strongest narrative at the moment.

Last week, Ethereum spot volumes on centralized exchanges rose to their highest level since the collapse of FTX, according to Kaiko's statement. However, even with expectations surrounding a potential spot ETF this year, derivatives markets have shown no signs that traders are gearing up for a rally. Kaiko also notes that Ethereum futures ETFs have been trading slowly for several months.

Weekly trading volume. Source: Kaiko Research.### Speculation on possible approval in May

Last week, Bloomberg ETF analyst Eric Balchunas estimated that there is a 70% probability of approval of spot Ethereum ETF funds from the SEC by May, with the initial final decision date on Ark Invest and 21Shares' application ending on May 23. However, according to investment bank TD Cowen, the SEC is unlikely to approve spot ETH ETFs "anytime soon." JPMorgan, on the other hand, sees more than a 50% chance of spot ETH ETF approval by May. Kaiko explains:

While > ETFs are one of the most catalytic narratives in BTC's history, it remains to be seen if ETH can replicate it. However, there are many narratives that ETH can lean on; If ETFs don't spur enthusiasm, perhaps the new Layer 2s or the success of EigenLayer and restaking.

As you can see from Kriptokoin.com**, the SEC Chairman says that cryptos other than Bitcoin are securities. Given its stance in this direction, the uncertainties surrounding spot Ethereum ETF approvals remain.

Follow us on Twitter,* Facebook* and Instagram* and join our Telegram* and YouTube channel to stay up to date with breaking news!