Bitcoin BTC
+3.10%
Its 60-day rolling correlation with Ethereum has fallen below its 70% average for the first time in three years, indicating a shift in the relationship between the two largest cryptocurrencies.
The last time the indicator fell below this level was in early 2021, when Bitcoin was moving into the price discovery phase after breaking previous highs, according to data from Kaiko Research.
In the correlation indicator between assets, a value of 1 (or 100%) indicates a perfect positive correlation. This means that assets move in exactly the same direction at the same scale. On the other hand, a value of 0 (or 0%) indicates no correlation, while a value of -1 (or -100%) indicates a perfect negative correlation, with the assets moving in opposite directions at the same magnitude.
So in this case, a drop below 70% means asset prices are not as synchronized as they have been in previous years.
Correlation between Bitcoin and Ether. Image: Kaiko Research.
Will the spot Ether ETF hype spark a comeback?
This decline in correlation comes as a new story for the cryptocurrency market amid speculation that the Securities and Exchange Commission (SEC) could be next in approval of a potential spot Ether ETF, following the launch of a spot Bitcoin ETF in the U.S. last week. This is due to this tilt.
“It is no coincidence that this happened on the same day that the Bitcoin spot ETF began trading,” Kaiko said. “The price activity of the two crypto assets has been divergent for several months as BTC has benefited from ETF hype and speculation. 
ETH
+1.52%
“We experienced a relatively sluggish rally,” he said.
“After the Merge, Ethereum has been talking about deflation, ultrasonic currencies, layer 2, liquid staking derivatives, re-staking, and now ETFs,” Kaiko added. “Despite these competing narratives, the potential approval of a spot ETF appears to be the strongest narrative at the moment.”
As reported by Kaiko, spot trading volume of Ether on centralized exchanges surged last week to its highest level since the FTX collapse. But despite expectations for potential spot ETFs this year, there were no signs in the derivatives market that traders were gearing up for a rally. Additionally, the Ethereum futures ETF has been trading sluggishly for several months, Kaiko noted.
Weekly trading volume. Image: Kaiko Research.
Speculation about possible approval in May
Last week, Bloomberg ETF analyst Eric Balchunas estimated There is a 70% chance that the SEC will approve a spot ether ETF fund by May, and the agency’s first final decision on applications from Ark Invest and 21Shares is due on May 23.
But investment bank TD Cowen said it was unlikely the SEC would approve a spot ether ETF “any time soon,” and JPMorgan said there was a less than 50% chance a spot ether ETF would be approved by May.
“ETFs have been one of the biggest catalysts in BTC history, but it remains to be seen whether ETH can replicate that,” Kaiko said. “But ETH has a lot of stories to fall back on. If ETFs don’t generate enthusiasm, perhaps a new Layer 2 or EigenLayer and re-staking will succeed.”
There still remains uncertainty surrounding the approval of a spot Ethereum ETF, given current SEC Chairman Gary Gensler’s position that cryptocurrencies other than Bitcoin are securities. However, Gensler’s predecessor, Jay Clayton, once noted that if a small number of tokens are widely distributed, they may no longer be considered securities, and former SEC corporate finance director William Hinman also commented in 2018 on ether’s decentralized nature. For consideration, he said, Ether is not considered a security. It is not a security.
Since the spot Bitcoin ETF began trading, Ethereum prices have fallen about 6% for the week and are up 9% year to date. This compares to Bitcoin’s decline of about 10% over the past week, and is now down more than 2% since the beginning of the year. According to The Block’s pricing page, Ether is currently trading at $2,480.
ETH/USD price chart. Image: Block/TradingView.
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