Is Ethereum really a Bitcoin competitor? Potential factors suggest its price is negatively correlated

Over the past few weeks, Ethereum and Bitcoin prices have been showing a negative correlation.

According to the price trend chart, it is clear that there is a close correlation between the performance of Ethereum and Bitcoin. When the price of Bitcoin rises, the price of ETH falls, and vice versa.

“ETH and BTC haven’t always been negatively correlated. However, they are currently negatively correlated. —itsFromHΞavΞn”

Differences

Ethereum is completely different from the Bitcoin network in terms of philosophy, structure, monetary policy, and vision. Bitcoin was developed to be used as a digital gold and a cash system. In contrast, Ethereum is used to complement decentralized applications. Essentially, Bitcoin is a digital currency, while Ethereum is a decentralized application network.

Many Bitcoin and security experts, including Andreas Antonopoulos, have commented on the relationship between Bitcoin and Ethereum in the past. In 2016, Antonopoulos wrote:

“Stop calling Ethereum a ‘Bitcoin competitor.’ Neither Ethereum nor Bitcoin considers the other to be a competitor. Post-national currencies are not a zero-sum game.”

To some extent, Ethereum developers and businesses rely on the Bitcoin network for stability and security. Ethereum prioritizes flexibility and functionality to provide a more efficient ecosystem for developers, while Bitcoin is a better store of value.

For example, blockchain startups that often conduct ICOs usually hedge the ETH funds they raise into Bitcoin to increase stability. Given Bitcoin’s lower volatility, startups prefer to store their funds in Bitcoin, either through cold storage or hardware wallets.

Bitcoin scalability issues

Recently, as the Bitcoin community has been unable to decide which solution to activate to scale the Bitcoin network, some Bitcoin users have migrated to the Ethereum network. Some analysts, including Social Minds founder and Reality Keys developer Edmund Edgar, even described ETH as a viable alternative payment method to Bitcoin because ETH has a fixed fee.

In Ethereum, transaction fees are called "gas". In order for users to initiate smart contracts or send transactions, they need to pay a certain amount of gas. According to Edgar, this transaction fee is fixed and does not change with the size of the transaction, which is different from Bitcoin.

Edgar explained:

“User accounts are not modeled as one type of account. You can have a single balance, and it doesn’t matter how many payments you have to make to get to that balance. Wallets are simpler, there are no disputes, and fees are predictable and explainable. Every payment costs the same fee, no matter where the funds come from.”

Chris Burniske, head of crypto products at ARK Invest, further noted that traders tend to switch back and forth depending on the performance of the two markets: Bitcoin and Ethereum.

Correlation! = Causation. These are short-term data, but they show that traders are switching back and forth between BTC and ETH. — Chris Burniske

ETH/BTC trading pair

Bitcoin users, Ethereum developers and businesses are showing increasing interest in the Ethereum global market. Meanwhile, the ETH/BTC trading pair accounts for 50% of all Ethereum transactions.