Coinbase Reports Declining Correlation Between Bitcoin and Ethereum Returns
According to reports, Coinbase stated in a research report that the correlation between Bitcoin and Ethereum returns has been declining since mid March. After the upgrade of Ethere
According to reports, Coinbase stated in a research report that the correlation between Bitcoin and Ethereum returns has been declining since mid March. After the upgrade of Ethereum in Shanghai, the decline in this relationship became more apparent, and a similar trend appeared in September 2022 after the last update to Merge on the network. The weakening of the 40 day correlation in the daily return rate may continue for another two weeks, as the initial stage of Ethereum extraction remains valid after the upgrade.
Report: The decline in the correlation between Bitcoin and Ethereum may affect investors’ hedging strategies
As one of the biggest names in the cryptocurrency market, Coinbase makes predictions that can make or break the industry. According to their recent research report, the correlation between Bitcoin and Ethereum returns has been declining since mid-March. The weakening of the 40-day correlation in the daily return rate may continue for another two weeks, as the initial stage of Ethereum extraction remains valid after the upgrade.
What is the Correlation Between Bitcoin and Ethereum Returns?
Before we dive into the details of the report, let’s first understand the correlation between Bitcoin and Ethereum returns. Correlation is the statistical measure of the degree to which two assets move together. In simpler terms, it is the relationship between the changes in value of two different investments over time. A correlation of 1 means that two investments are moving in perfect lockstep with each other. While a correlation of 0 means there is no relationship between them.
Declining Correlation Between Bitcoin and Ethereum Returns
According to the Coinbase report, the correlation between Bitcoin and Ethereum returns has been declining. This implies that the two cryptocurrencies are moving relatively independently of each other, and changes in the value of one asset are not being reflected in the other.
The weakening of the correlation started mid-March, but became more apparent after the upgrade of Ethereum in Shanghai. A similar trend appeared in September 2022 after the last update to Merge on the network. This suggests that the upgrade of Ethereum and the changes made to the network played a significant role in the decline of correlation.
Ethereum Extraction and the Correlation with Bitcoin
The weakening of the 40-day correlation in the daily return rate may continue for another two weeks, as the initial stage of Ethereum extraction remains valid after the upgrade. The upgrade puts the network into a new stage of mining called Proof of Stake. This reduces the energy needed for mining and changes the validation process from miners solving complex mathematical equations to validators staking their own ether.
This change in the validation process may have contributed to the decline in correlation, as Ethereum takes on a different role in the blockchain technology. It is no longer just a store of value like Bitcoin, but also a platform for decentralized applications and the execution of smart contracts.
Conclusion
The recent Coinbase report highlights a concerning trend in the correlation between Bitcoin and Ethereum returns. While the weakening of the correlation may be due to the upgrade of Ethereum, it is still unclear what other factors could have contributed to the decline. As with any investment, it is important to understand the risks and undertake due diligence before making any decisions.
FAQs
Q1: Why is the correlation between Bitcoin and Ethereum returns declining?
A: The exact reason is unclear, but it may be due to the upgrades made to the Ethereum network and changes in the role of Ethereum in blockchain technology.
Q2: What is the correlation between Bitcoin and Ethereum returns?
A: Correlation is the statistical measure of the degree to which two assets move together. In simpler terms, it is the relationship between the changes in value of two different investments over time.
Q3: Should I invest in Bitcoin or Ethereum?
A: Deciding which cryptocurrency to invest in depends on your individual investment goals and risk tolerance. It is important to understand the risks involved and undertake due diligence before making any decisions.
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