To understand Ethereum’s value changes before investing, it is important to know the characteristics and history of Ethereum, just as you would familiarize yourself with any other asset before investing. So Does Ethereum follow Bitcoin?
Ethereum: Quick Introduction
Ethereum is an open-source decentralized blockchain with smart contract functionality. Programmer Vitalik Buterin was the one who proposed Ethereum in 2013. Back then, the idea of the Ethereum network arose out of dissatisfaction with Bitcoin’s limited vision of using blockchain technology.
Despite the general volatility of cryptocurrencies, many consider Ether to be one of the most stable and flexible coins. That’s because of a solid use case of the network. Ethereum applies the revolutionary blockchain technology to a software platform that enables the creation of various decentralized applications – such as smart contracts – that can be created and run without third parties. In other words, Ethereum has ambitious plans to decentralize not only currency trading but also many different levels of business operations.
Ethereum has its token called Ether (ETH), which takes the queen’s place alongside Bitcoin. Ether is essentially a currency that you can use to buy decentralized apps running on Ethereum. It is also the currency that encourages miners to run the Ethereum protocol on their computers. This creates a reward system similar to Ethereum as Bitcoin.
Does Ethereum follow Bitcoin? Ethereum price history vs. EUR and USD
To help you understand Ethereum’s historical financial performance, we have listed Ethereum’s lowest prices over the last few years. What could be the lowest price for this year? Make your guess in the comments section below.
- 2015 1 ETH = 0.42 USD = 0.38 EUR
- 2016 1 ETH = 0.95 USD = 0.87 EUR
- 2017 1 ETH = 7.92 USD = 7.21 EUR
- 2018 1 ETH = $83.90 = €76.41
- 2019 1 ETH = 102.93 USD = 90.55 EUR
- 2020 1 ETH = 127.29 USD = 104.58 EUR
- 2021 1 ETH = 730.37 USD = 600.86 EUR
Ether price in July 2022 – 1 Ethereum (ETH) = 1,049.89 USD = 1006.79 EUR
What affects the Ethereum price?
Does Ethereum follow Bitcoin? The price of cryptocurrencies fundamentally depends on the supply and demand of the markets. Overall, there are a few key factors affecting sentiment in the ether market.
Bitcoin has the biggest impact on the value of other cryptocurrencies. When the Bitcoin price increases, the value of other cryptos tends to increase proportionally. This happens in reverse when the price of bitcoin goes down.
Aside from bitcoin price changes, what also affects Ethereum value is which coin dominates the market. In short, Bitcoin has been the number one cryptocurrency in terms of market cap and number of active wallet addresses for years. But in July 2021, Ethereum flipped (dominated) Bitcoin for the first time by the number of daily active addresses on its network. If the trend continues, Ethereum’s price could rise.
Does Ethereum follow Bitcoin? Ethereum is considered a legacy coin
The cryptocurrency market offers a variety of different assets for different investor segments. “Legacy” cryptocurrencies like Bitcoin and Ethereum are good for long-term holding. These coins carry less risk than newer, smaller tokens.
Since the market crash caused by COVID-19, the volatility of both Bitcoin and Ethereum has been low compared to newer cryptocurrencies. In the chart below, Bitcoin (BTC) and Ethereum (ETH) volatilities are peaking in the early 2020 COVID-induced crash. Then the volatility of both assets will remain relatively low after spring 2020.
In early to mid-2021, younger small-cap tokens showed escalating volatility during the bull cycle and May correction.
In January 2022, Ethereum’s price dropped to $2,411.91 (EUR 2,231.38). However, in the following months, the price of Ethereum remained at an average of $2600. Of course, Russia’s invasion of Ukraine had brought even more volatility to the crypto market.
The Truth About Crypto Price Correlation: How Closely Does Ethereum follow Bitcoin?
Cryptocurrency market sentiment is often influenced by various factors such as B. expert forecasts or political events. However, when analyzed over a larger time frame, it turns out that the prices of most cryptocurrencies – especially Ether (ETH) – could mainly depend on the valuation of Bitcoin (BTC).
The results of research conducted by analysts at Skew in November 2019 showed that ETH was the cryptocurrency with the highest correlation to BTC two years in a row, with an average correlation coefficient of 0.9. Meanwhile, ETH was the highest correlated asset in 2019, the Binance research team reported on Jan 22, 2020.
In this case, is it worth relying on correlation when buying cryptocurrencies? Could ETH be less correlated to BTC than is commonly thought? To find the answer, Cointelegraph analyzed cryptocurrency charts over the past three years and spoke to experts with contrasting views on the subject.
What is the correlation?
The concept of correlation in stock trading refers to the phenomenon when the values of two assets move in a similar direction. However, when it comes to the cryptocurrency market, the correlation can apply to all assets at once. This happened as a result of a massive bitcoin price crash in early 2018, followed by a simultaneous drop in the capitalization of all other cryptocurrencies.
Opinion #1: Bitcoin is king
Do the above observations mean that Bitcoin is the front runner and primary influencer of the crypto market and thus the leading trendsetter? Cryptocurrency exchange charts show that a drop in BTC price will inevitably affect the exchange rate of ETH, XRP, Litecoin (LTC), and other assets.
Therefore, the impact of BTC price on other cryptocurrencies and ETH, in particular, is a natural occurrence in the digital asset market, according to traders and market analysts. Pierce Crosby, general manager of charting platform TradingView, spoke to Cointelegraph about the matter:
“Everything correlates to bitcoin, much like the US stock market, everything correlates to the US dollar. Bitcoin is the largest store of wealth for the asset class, so basically, everything is “linked” to its overall performance. It’s an important distinction to make and something people don’t understand or take the time to think about. When we see asset prices rising – i. H. ETH or LTC – do we need to compare it to the broader index action.”
According to the latest cryptocurrency volatility report published by the San Francisco Open Exchange, the current correlation between BTC and ETH performance is significantly higher than the correlation between BTC and other altcoin values. The analysts cited the actively discussed and often controversial news about Facebook’s Libra as the main reason for the similar behavior of the two top cryptocurrencies.
Michaël van de Poppe, a cryptocurrency market analyst and trader at the Amsterdam Stock Exchange told Cointelegraph that ether will always have some correlation with bitcoin as “bitcoin is king and the rest of the market usually follows.” He compared this correlation to the commodity markets, where gold is the leading asset whose price changes are followed by other metals.
So, it appears that the bitcoin price in the cryptocurrency market is a sentiment barometer of investor sentiment towards digital currencies in general. When it changes due to systemic factors affecting the market – for example, increased volatility in traditional markets or a change in cryptocurrency regulation – ETH price can change in the same direction as BTC.
Opinion #2: ETH does not follow BTC
On the other hand, if an event turns out to be a specific driver of BTC price — for example, the United States Securities and Exchange Commission’s refusal to accredit an exchange-traded fund application — the correlation may turn negative, and ETH may turn negative given BTC’s falling price rise in price. According to Van de Poppe, the correlation between the two leading cryptos is different in different parts of the cycle:
“In some parts, the correlation is high where Ethereum is outperforming Bitcoin, in some parts it is low as Ethereum is falling sharply against Bitcoin while Bitcoin is trending up against USD. It’s different in different parts.”
Comparing the BTC and ETH charts shows that some patterns of their price movements coincide over a long period. This correlation can be either positive (from 0 to 1) or negative (from 0 to -1). A positive correlation, like the current correlation between BTC and ETH, suggests that if the price of Bitcoin rises significantly, ETH can also appreciate over the same period. This phenomenon is particularly noticeable with large price fluctuations. In particular, BTC-ETH correlation is instantaneous in most cases – when coin prices change with a difference of several minutes or hours.
Does Ethereum follow Bitcoin?
As it turns out, ETH doesn’t always accurately replicate BTC price action and tends to show independence quite often.
Such results were evidenced by analyzing 14 significant changes in the price of BTC and ETH that occurred over the period from June 2017 to December 2019, when their correlation coefficient varied between 0.26 and 0.89. The observation showed that ETH price repeated BTC’s behavior five times out of 14 – while in four cases the correlation was negative.
The findings presented above are also supported by research conducted by Su Zhu, CEO of hedge fund Three Arrows Capital. According to his data, BTC and ETH have shown multidirectional momentum nine times in the past three years.
Zhu also pointed out the fact that the first quarter of the year in the history of the cryptocurrency market has always shown an interesting correlation between ETH and BTC. Every year, ETH has shown a 30% price increase within a month, while BTC has always declined over the same period. Also, Ethereum price growth almost always happened from January to June. However, from October to December 2017, BTC saw a 538% growth, followed by surges in the prices of other cryptocurrencies. Van de Poppe told Cointelegraph on the matter:
“The reason is quite simple; the kings of movers are Ethereum and Bitcoin and yet the majority of ICOs are based on Ethereum. So when Ethereum moves, they usually follow. The same goes for the IEOs. When Binance Coin is trending up, they usually follow.”
At the same time, according to Zhu, the correlation between the two cryptocurrencies has intensified over the past year. The possible reason for this change could be a not very successful year for the Ethereum network – specifically the failure of the team to release the full version of Ethereum 2.0.
However, researchers at the San Francisco Open Exchange suggest that ETH’s high correlation, in general, does not indicate its dependence on BTC, but rather that the Ethereum blockchain has received more recognition, and ETH’s price as an independent asset has been significant in the past Comparison to other altcoins.
Why Bitcoin cloud mining?
An unknown individual or group called Satoshi Nakamoto introduced the Bitcoin network in 2009. In 2021, there will be more than 10,000 different projects in cryptocurrencies. So each of them has its role in building the future of money.
The market value of cryptocurrencies reached $ 1 trillion. It happened for the first time in January 2021. It passed $ 2.5 trillion less than three months later. So it shows that this market is one of the growing markets favoring its investors.
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