on the crypto
Those unfamiliar with cryptocurrencies, such as new institutional investors who have recently bought bitcoin, could now explore other industry news. With the long-awaited arrival of phase 0 of the Ethereum 2.0 update launching on December 1st, the native token of the ether network (quotation ETH) could attract the attention of these investors.
Ether is not a replacement for Bitcoin
Analysts argue that ether should be judged on its own merits and not as a substitute for bitcoin. As ether is trading around 59% below its all-time high of $ 1.432,88, it is tempting to believe there is a bargain to be made.
Furthermore, the Ethereum 2.0 update to increase network scalability, security and energy efficiency has generated a lot of hype. However, at least for now, analysts and traders don't think ether will replace bitcoin FOMO.
"Institutional investors are buying BTC for the digital gold narrative," said Ryan Watkins, Messari senior research analyst. "ETH just isn't in that conversation yet."
Ether "benefits from the spillover and probably has more attention from crypto-natives," said Vishal Shah, founder of the Alpha5 derivatives exchange. "For those new to the industry, it is difficult to see how bitcoin is not the only access ramp."
Weakening of the correlation between bitcoin and ether
Some analysts say that as more institutions pour money into bitcoin and raise its price, ether and other cryptocurrencies will gradually separate from bitcoin. The data shows that the 90-day correlation coefficient between the prices of the top two cryptocurrencies, while still strong, has gradually weakened since the summer from 0,93 to nearly 0,7 in early December.
"The problem with correlation is that it can disappear at any moment," said Ashwath Balakrishnan, a research analyst at digital asset research firm Delphi Digital. "In that case, the fundamental principles of what you hold must be clarified because if you hold ether as a proxy of your bitcoin exposure, when prices decouple, you will be exposed to something very different."
Correlation isn't everything
Bitcoin has been used by many investors this year as a hedge against a decline in the purchasing power of US dollars. Ether is considered the currency of the "world computer", which aims to build an ecosystem of decentralized applications.
The close historical correlation between bitcoin and other cryptocurrencies may be due to how small the digital asset ecosystem is compared to the global economy. The total market capitalization of crypto assets is estimated at $ 562 billion, just 1,7% of the combined market capitalization of the S & P500 index of $ 32,2 trillion.
The correlation data doesn't tell the whole story. Prices may vary in tandem, but the degree to which this happens is another matter. "When the price of Ether starts to be driven by its own catalysts, considering it as a proxy for exposure to BTC will not work as expected," added Balakrishnan.
