Bitcoin and ETH’s correlation rises, but masks their differences

The drop in Bitcoin’s price comes despite the fact that sentiment in the cryptocurrency market remains bullish.

Despite the differences in the value propositions of Ethereum and Bitcoin, ETH’s correlation with Bitcoin is rising.

Data from CoinDesk 20 showed Bitcoin reaching a high of $19,920 before its momentum stalled overnight.

Then traders started clicking the “sell” button like crazy… causing the market to fall to $18,171.

Katie, a technical analyst at Fairlead Strategies, believes that $19,511 is a resistance line.

"It will break through sooner or later, and from one perspective momentum may emerge." She also believes that 19511 is not a strong resistance level - $20,000 is a psychological level, just like Dow Jones 30,000.

In the stock market, all major market indices rose on Tuesday.

Asian stocks' Nikkei 225 index closed up 1.3% as vaccines from several drug manufacturers are expected to hit the market in the short term.

The U.S. S&P rose 1.1% as investor optimism about potential economic stimulus boosted the index.

But Bitcoin's sideways movement and then sharp drop on Tuesday reiterated the volatility in the cryptocurrency market.

So we need to discuss the role of Bitcoin.

“Despite strong medium- and long-term momentum, more volatility is expected in the short term.”

So when you compare the volatility of Bitcoin to traditional assets, you'll find that Bitcoin's volatility is actually on the rise. So Bitcoin is not doing as well as it could be as a store of value.

However, in times of economic uncertainty, the narrative of Bitcoin as a store of value still holds true for much of the market.

"Bitcoin is being used as a hedge against inflation - the global loose monetary policy triggered by COVID-19," said one market analyst.

Andrew, an executive at quantitative trading company Efficient Frontier, judged that “at present, the number of stablecoins entering the exchange is decreasing, while the number of Bitcoin entering the exchange is increasing - this indicates that the buying pressure of Bitcoin will decrease in the near future.”

Analysts are also keeping a close eye on ETH.

As the native token of the Ethereum network, ETH’s historical high price has exceeded $1,400, so many people think that ETH is a good choice in this bull market.

“I think Ethereum is still undervalued relative to Bitcoin,” said George, managing partner of investment firm Cryptanalysis Capital.

“The booming DeFi industry shows the practicality of Ethereum’s smart contract protocol.”

The correlation between Bitcoin and ETH has also been trending upwards over the past few days.

Bitcoin (gold) vs Ethereum (ETH) performance on Bitstamp since November 28.

Source: TradingView

But this, to some extent, obscures the clear distinction between ETH and Bitcoin after the launch of the Beacon Chain, the core of Ethereum 2.0.

In summary, while Bitcoin’s “store of value” continues to be a strong signal from industry analysts, Ethereum’s concept of “programmable money” does not yet make it work on a fundamental basis.