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Ethereum and Bitcoin

Ethereum steals investor’s favor as Bitcoin outflows intensify

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While investors have remained cautious due to the tepid market conditions, they have turned toward Ethereum now. According to the latest ‘Digital Asset Fund Flows Weekly’ edition by CoinShares, the world’s largest altcoin, Ethereum witnessed its third 3rd consecutive week of inflows right ahead of its London upgrade next month. In fact, last week’s inflows went up to $11.7 million. This brings the year-to-date inflows near the coveted $1 billion mark.

This comes amidst the digital asset investment products experiencing a rather dull week with minimal net inflows totaling just $2.9 million last week. Inflows to Bitcoin have halted due to severe sell pressure and instead, the outflow has gained traction, a trend that was seen over the last two weeks. The total outflow figures have reached $10.4 million.

However, CoinShares revealed that the outflows are minimal relative to the massive figures observed in May and June this year. Interestingly, even as the market traded poorly the nature of inflows and outflows across different providers was found to be mixed. Hence, the platform stated that it believes the timing of the rollouts of some investment products in the recent weeks, which helped investors to accrue market access for the first time, has induced profit-taking rounds.

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Ethereum steals investor's favor as Bitcoin outflows intensify 2

Meanwhile, a similar pattern was seen in the rest of the cryptocurrency market as well. For tokens such as XRP, Polkadot [DOT], Cardano [[ADA], and Stellar [XLM] all had inflows that were less than $0.5 million each. The report also mentioned,

“Volumes in Bitcoin fell to just 38% of the year-todate average, totalling US$3.9bn per day last week. We do not believe this represents something ominous in the market as we saw similar seasonal dips in volumes during the summer months in recent years.”

Ethereum increasingly becoming popular among institutions

Almost $100 billion was wiped off the entire cryptocurrency market in 24 hours as it remained jittery. Despite many alternatives, Ethereum fortifies the infrastructure of a rapidly growing crypto decentralized finance [DeFi] ecosystem. Several applications are being built on top of this new finance system that pushed the entire blockchain marketplace to new heights.

Hence, high-profile financial institutions are not only building the infrastructure to invest in Bitcoin but have also started expanding their footprint across the Ethereum network with the hope that the demand for this digital asset will soar as the applications created on top of them develop.

Ethereum-Bitcoin Price at a Yearly-High; ETH Futures Sees $300 Milllion OI

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The development of Bitcoin and Ethereum has been an ongoing situation throughout 2020. When the market pumped between January-February in 2020, Ethereum blindly followed Bitcoin in the charts, as their correlation index surged from 0.826 to $0.881. During the collapse as well, the correlation continued to increase, tipping off at 0.901.

Many suggested that despite its importance, Ether continued to be dependent on Bitcoin for a bull run. The tables have largely turned now over the past few months and it is evident with respect to the recent data.

skew ether price as of bitcoin price

According to the above skew chart, Ethereum is currently inflicting its largest price percentage with respect to Bitcoin in a year. Ether value is 3.3 percent of Bitcoin price which was last observed in June 2019.

Besides, the 1-month correlation between Ethereum and Bitcoin dropped down to 58 percent on 1st August. Before 1st, the correlation between Ethereum and Bitcoin was above 90 percent in the industry.

Ethereum Futures and $1 billion crypto liquidation

One of the main reasons for Ethereum steadily grown over the past couple of weeks is due to the growth of its derivatives market.

skew total eth options open interest

The total Ethereum Options interest on Deribit and OKEx is at an astounding all-time high of $313 million and $30 million respectively at the moment. Derivatives on Bitcoin’s end is not the most popular product anymore with ethereum carving out its own space in the futures market.

For Ethereum, it is definitely a huge boost since its exposure to traders on this platform will further lead to better classification and reach over the rest of the industry.

There was avid speculation that the recent sell-off at $415 ETH, 24-hours back took place due to the liquidations worth over $1 billion on Bitcoin and Ethereum futures contracts in a short period. According to data, it was the largest liquidation since March 13th, when Bitcoin and Ethereum had dropped down to $3600 and $120 respectively.

However, popular analyst Alex Kruger said,

“That was a blowoff top in ETH and BTC last night. A blowoff doesn’t have to be “the top.” Silver and gold had a blowoff top last week. See how similar charts are in the days and minutes preceding the crash. Bigger picture remains unchanged. Higher highs ahead in 2020 IMO.”

Physically-Settled ETH Futures Pioneered by ErisX

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The Ethereum community and the entire digital currency industry could see another step forward soon. Chicago-based digital currency exchange firm, ErisX, rolled out its physically-settled ETH futures contracts, which avail real digital currencies to investors instead of fiat worth their value.

The latest launch of physically-settled ETH futures by ErisX, makes Ethereum the second digital currency to have a legally approved futures market after Bitcoin. Historic action indicates that regulators are becoming more and more warm with the second most capped digital currency after Bitcoin.

Physically-settled ETH futures rolled out a week after ErisX secures BitLicense

ErisX’s latest announcement comes just a week after the U.S.-based crypto exchange revealed that it had obtained a virtual currency license (BitLicense) from the state of New York. The Ethereum futures market of exchange falls under the hegemony of the CFTC.

Earlier in February, the Chairman of CFTC insinuated that the future of Ethereum is underway while emphasizing that ETH and BTC are products under the responsibility of the CFTC.

The physically-settled ETH futures by ErisX means that contracts are settled utilizing the basic asset. Ethereum is awarded to the trader, rather than the cash difference value between the asset and the market prices and the contract. ErisX utilizes a centrally administered order-book to govern the trading of futures contracts on its platform.

Futures contracts are regularly used by financial institutions and sole investors to insure the risk. For instance, an individual may decide to risk getting 20 ETH for $400 in half a year, although the price might rise higher at the time. Futures contracts help in market price determination and elevate the liquidity of the market.

ErisX new product available through American brokers

The Chicago-based crypto broker, ErisX, is backed by US brokerage firm, TD Ameritrade. The crypto exchange platform has secured two regulatory licenses: a derivatives clearing license and a designated contract market (DCM) license.

The three-year-old start-up has availed its products through US brokers licensed as futures commission merchants (FCMs). In fact, ErisX just joined TradeStation Crypto the other day, to extend the spread of attainable liquidity convenient to the latter’s clients.

Is Ethereum’s Price Action Dependent on Bitcoin?

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The Underlying Correlation Between Bitcoin and Ethereum

The correlation coefficient is the statistical measure of strength that two relative variables have in their relationship. Analysts observed a sync performance between Ethereum and Bitcoin since last year. Both coins have a strong positive relationship. Where their price correlation coefficient is 0.68.

This estimate represents the past 100 days of price action for both assets. The correlation measurement usually has 1 as the strongest positive correlation. -1 represents the strongest negative correlation.

A negative coefficient reveals two prices moving in opposite trends. The positive coefficient, however, shows price actions moving in the same direction.

In this regard, the price of Ethereum has most times depending on the valuation of Bitcoin. Here is why? 

Oftentimes factors such as expert forecasts, calamities and major political events have influenced cryptocurrency market sentiment.

Closely, it turns out that overall cryptocurrency market sentiment has a huge influence on Bitcoin. Therefore it is likely that the price of a couple altcoins could depend on the price action of Bitcoin.

According to Skew, Ethereum posted the highest correlation coefficient with Bitcoin for two consecutive years. The total average correlation is 0.9. While 2019 posted the highest correlation index between both digital assets. 

2018 bear market will go down the books of history given the historic bitcoin price crash. A squashing crypto market bloodbath followed the massive price shed. This indicated a striking correlation between the price of Bitcoin and that of all crypto assets.

The stock market has witnessed a high correlation between the United States Dollar and equity markets. As the US dollar is the largest store of wealth, so is Bitcoin the largest store of asset class wealth. It, therefore, makes sense that the overall performance of crypto markets is pegged on Bitcoin. 

However, most traders and analysts agree the Ethereum – Bitcoin correlation is a natural situation in the cryptocurrency market. Meanwhile, Michael Van de Poppe compared the correlation coefficient in crypto markets to that of commodities. The Amsterdam Stock Exchange trader and market analysts said gold leads in the commodities asset class. Gold’s price sets the pace for other metals. 

It is therefore clear that Bitcoin’s price could change as a result of government policies, high volatility in traditional financial markets; but this change will likely reflect on the entire cryptocurrency market. However, Van de Poppe notes slight variations in this observation. He says: 

“Some parts the correlation is high in which Ethereum outperforms Bitcoin, in some parts, it’s low as Ethereum drops hard against Bitcoin, while Bitcoin trends up against USD. It’s different in different parts.”

Ethereum will not necessarily repeat Bitcoin price movements. A correlation study for the period between June 2017 and December 2019 revealed that 5 of 14 cases indicated a strong positive correlation. While four cases showed a negative correlation coefficient.

However, the correlation between Ethereum and Bitcoin has intensified since the last half of 2019. Nonetheless, researchers at the San Francisco Open Exchange reveal Ethereum’s strong correlation is a result of general failure.

Particularly the failure to launch Ethereum 2.0 in 2019. Several studies have also been trying to establish a correlation pattern between cryptocurrency and equity markets. Sadly, none was identified and traders have been quick to suggest that correlation is not a reliable tool for market analysis.