Can eth follow Bitcoin

Answered at Sep 11, 2024

Can ETH Follow Bitcoin? An Analysis of Ethereum's Price Movement in Relation to Bitcoin

Introduction

The cryptocurrency market is often characterized by the interplay between its two largest assets: Bitcoin (BTC) and Ethereum (ETH). As investors and analysts seek to understand market trends, a common question arises: Can Ethereum follow Bitcoin's price movements? This report delves into the relationship between these two cryptocurrencies, examining historical patterns, market dynamics, and future projections to provide insights into this crucial question.

Historical Correlation Between Bitcoin and Ethereum

Historically, Bitcoin and Ethereum have shown a strong correlation in their price movements. This relationship is quantified through the BTC/ETH correlation coefficient, typically measured on a 30 to 60-day rolling window. Data suggests that while both assets have been closely correlated, the relationship has become more nuanced since Ethereum's Shanghai update in 2023 (OKX, n.d.).

Key Observations:

  1. During the 2017-2020 cycle, BTC and ETH exhibited similar movement patterns:

    • Bitcoin corrected for 363 days, losing 84% of its value.
    • Ethereum corrected for 336 days, losing 94% of its value.

  2. In bull markets, Ethereum has historically outperformed Bitcoin:

    • ETH was priced at over 0.05 BTC during the 2018 and 2021 bull runs.
    • 0.05 BTC has served as a support level for ETH since 2021.
    • 0.08 BTC has acted as a major resistance level on three separate occasions.

  3. Market dynamics:

    • Ethereum tends to perform better than Bitcoin in bull markets.
    • Conversely, ETH typically underperforms BTC in bear markets.

Factors Influencing Ethereum's Ability to Follow Bitcoin

Several factors contribute to Ethereum's capacity to follow or diverge from Bitcoin's price movements:

1. Market Capitalization and Dominance

Bitcoin and Ethereum collectively account for over 70% of the total cryptocurrency market capitalization. This dominant position means that their price actions are inherently connected, often setting the tone for the broader market.

2. Institutional Adoption

As institutional investors increasingly adopt Bitcoin as a means of exposure to the cryptocurrency market, a lower correlation between BTC and ETH could necessitate holding both assets for comprehensive market exposure.

3. Technological Developments

Ethereum's ongoing technological advancements, such as the transition to Ethereum 2.0 and the implementation of scaling solutions, can influence its price independently of Bitcoin.

4. Regulatory Environment

Changes in the regulatory landscape can affect Bitcoin and Ethereum differently, potentially leading to divergence in their price movements.

Future Projections and Expert Opinions

Analysts and market experts have varying opinions on Ethereum's future price movement in relation to Bitcoin:

  1. CoinCodex Forecast:

    • Predicts Ethereum to trade at approximately $3,660 by April 15, 2024 (around the time of the next Bitcoin halving).
    • Projects ETH to reach new all-time highs above $6,600 in September 2024.
    • Forecasts a peak above $7,000 in April 2025.

  2. Benzinga Compilation:

    • WalletInvestor suggests a more conservative estimate of $1,980.409 by the end of 2024.
    • AMBCrypto predicts an average of $5,172.70 for 2024.
    • DigitalCoinPrice estimates ETH price at $4,901.06 for 2024.

  3. Long-term Projections:

    • Bitcompare foresees ETH potentially reaching $12,290 by 2030.
    • CoinPedia provides a bullish forecast of $43,563.01 on average by 2030.
    • Finder's panel of experts predicts an average of $19,190 for Ethereum by 2030.

  4. Contrarian View:

    • VanEck analysts present a bearish outlook, suggesting ETH may drop to as low as $360 by 2030.

Analysis of Ethereum's Potential to Follow Bitcoin

Based on the available data and expert opinions, there are several reasons to believe that Ethereum can indeed follow Bitcoin, albeit with its own unique characteristics:

  1. Historical Precedent: The strong historical correlation between BTC and ETH suggests that Ethereum is likely to continue following Bitcoin's broader market trends.

  2. Market Leadership: While Bitcoin often leads market movements, there are indications that Ethereum could take the lead in certain periods. As noted by Daniel Kukan, senior cryptocurrency trader at Crypto Finance AG, "I believe ether can take the lead towards the year-end against BTC" (CoinDesk, 2021).

  3. Technological Advancements: Ethereum's ongoing developments, particularly in areas like DeFi and NFTs, could drive independent growth and potentially allow it to outpace Bitcoin in certain market conditions.

  4. Institutional Interest: As institutional investors become more familiar with cryptocurrencies beyond Bitcoin, Ethereum could see increased adoption, potentially leading to more independent price action.

  5. Market Maturity: As the cryptocurrency market matures, Ethereum's distinct use cases and ecosystem could lead to more differentiated price movements relative to Bitcoin.

Conclusion

While Ethereum has historically followed Bitcoin's broader market trends, the relationship between these two cryptocurrencies is evolving. Ethereum has demonstrated the potential to not only follow Bitcoin but also to lead in certain market conditions. The technological advancements, growing institutional interest, and maturing market dynamics suggest that Ethereum could continue to follow Bitcoin's general trajectory while also carving out its own path.

However, it's crucial to note that cryptocurrency markets are highly volatile and subject to rapid changes. While historical data and expert predictions provide valuable insights, they cannot guarantee future performance. Investors and analysts should continue to monitor both Bitcoin and Ethereum closely, considering factors such as technological developments, regulatory changes, and broader market trends when assessing their potential price movements.

As the cryptocurrency landscape continues to evolve, the relationship between Bitcoin and Ethereum will likely remain a key focus for market participants. While Ethereum has shown it can follow Bitcoin, it has also demonstrated the potential to forge its own path, making the future interplay between these two leading cryptocurrencies an area of ongoing interest and analysis.

References

CoinCodex. (n.d.). Ethereum Price Prediction After Bitcoin Halving 2024. Retrieved from https://coincodex.com/article/31267/ethereum-price-prediction-after-bitcoin-halving-2024/

Benzinga. (n.d.). Ethereum (ETH) Price Prediction For 2024, 2025, 2026 - 2030. Retrieved from https://www.benzinga.com/money/ethereum-eth-price-predictions

OKX. (n.d.). BTC/ETH Correlation. Retrieved from https://www.okx.com/learn/btc-eth-correlation

CoinDesk. (2021). ETH-BTC Chart Points to Ether Leadership Ahead. Retrieved from https://www.coindesk.com/markets/2021/11/09/eth-btc-chart-points-to-ether-leadership-ahead/