Since a while, the idea that Ether (ETH), is fast becoming an independent asset, has been popular. This notion has gained mainstream traction in the past few months. The best example of this is the fact that ETH has shown substantial northbound movement since Oct. 1 against Bitcoin (BTC).
For context, towards the beginning of November, the realized correlation between BTC/ETH dropped to 60%. This was the lowest point in the currency’s ten-year-old history. Ether also saw a remarkable 505% increase in value over Bitcoin since the beginning of the year. This means that Ether outperformed the flagship crypto almost five times.
The best indicator of Ether’s dominance is the fact that the ETH/BTC pair has been trending north over the past few months, despite a significant market dip since December. Even though BTC’s value fell below $50K, the ETH/BTC price pair continued to rise, rising quickly by about 13% and reaching a three-year peak.
The “flippening” narrative
A spokesperson for Binance’s research wing told Cointelegraph that the above-mentioned activity, wherein ETH was able to rally against Bitcoin, was quite unusual. This is because the ETH/BTC pair tends not to rally during bull runs. He added: “This does not mean that ETH has decoupled from BTC but it gives a clear-cut glimpse of how not all alts can be correlated with BTC movements.”
It’s important that ETH is not considered an alt anymore, but it’s a token that has its own unique characteristics. The recent rise in ETH can be attributed to the Metaverse, GameFi and NFT narratives that are all based on the ETH network.
While ETH is far from being completely decoupled, the spokesperson stated that such a vision cannot be dismissed as a pipedream. The overall narrative is already shifting due to Ethereum’s emerging use cases, adoption, and other factors.
The analyst said that the same scenario could also be possible for other altcoins. “Just as in traditional equities there will not be any distinction between BTC and alts. Instead, prices of all tokens will be independently driven by both systemic and unsystematic risk.”
Igneus Terrenus is the head of communications at cryptocurrency exchange Bybit. He explained that the value of a digital currency is decided by its supporters and investors. After more than six years in development and a multitude of smart contract apps built on Ethereum, including some related to emerging spaces like DeFi or NFTs, the premium altcoin now has an identity and community that exists independently of that of BTC. This was especially evident over the past year. Terrenus stated that while overlaps will continue, there is enough difference to sustain a divergence of price movements.
“As the demographics for BTC and ETH camps continue diverge, we will also expect to see them respective price actions slowly disentangle even further.”
ETH is a unique player in the market
Netta Korin is the co-founder and chief executive officer of Orbs. Orbs is a public blockchain infrastructure. She stated to Cointelegraph that ETH’s straight-up northbound movement from Oct. 1 continues the belief that Ether could truly flip Bitcoin in the near future. While a large number of other cryptocurrencies still show a strong correlation to BTC, Netta Korin stated that Ether has proven to be an “oil for DApps”
Korin stated that Ethereum is now the most popular blockchain, surpassing Bitcoin in popularity, and has shown significantly higher performance than Bitcoin when it comes recovery from market downturns. The upcoming Eth2 upgrade “enhances the demand perspective,” she added.
“ETH decoupling is possible due to the new supply and demand mechanisms of Ethereum, its position as the world’s leading financial infrastructure and a critical backbone for many of the most popular projects like MakerDAO or Uniswap.”
Korin also mentioned that Ethereum is a key player for DeFi and a central space for the NFT sector. This platform seeks to develop financial applications for lending or trading on the blockchain. More than 3,600 DApps currently run on top of the Ethereum ecosystem. Ether can also be used as an inflation hedge because of its connections to DeFi and NFTs. These are two areas she believes will grow exponentially by 2021. She concluded that Ether is poised to surpass Bitcoin in market capitalization.
Is ETH’s independence helping BTC to grow?
Is ETH’s decoupling a likely reality? If so, how will it impact a possible BTC bullish move if ETH/BTC starts growing? A member of Binance’s research wing stated to Cointelegraph, “If the price spread between ETH/BTC continues to grow at its current trajectory it would still be incorrect to say that this development could lead to an overall increase in BTC growth spurt. Noting:
Large investors will continue to purchase Bitcoin regardless of the bearishness of other tokens or charts. Because BTC […] is still the leader in the space and market driver, they continue to do so. BTC is a digital storehouse of value and hedge against inflation, which further fuels this narrative.
However, Binance analysts did admit that they expect to see a frenzy of institutional and retail investors looking to increase their exposure to ETH.
Major financial institutions around the world have noticed Ether’s growing market power. JPMorgan Chase, the U.S. bank giant, recently stated that ETH might be a better investment than BTC in a report. This is especially true as the digital asset markets continue to evolve and mature. The company’s research analysts claim that ETH’s market cap has nearly doubled since last year, compared to BTC’s.
Another reason investors are excited about ETH is its potential to be a major player in the rapidly growing Web 3.0 ecosystem. This is a popular area even though it is years away from realizing its full potential. Although it is impossible to predict how the space will evolve in the future, it is likely that ETH will be able to capture much of what the decentralized Web 3.0 ecosystem has to offer.
Related: Status check: Ethereum moves closer to full deflation as Eth2 merges
Last but not the least, it’s worth noting the Ethereum network’s London upgrade, which was implemented in August 2021, changed the way that gas fee rates are calculated. This effectively burns a portion all ETH-based fees, and reduces the altcoin’s total supply pool. This has led to Ether’s annual inflation rate dropping from 4% – 3%.
Ether’s constantly evolving monetary policies, which are designed to convert the asset into deflationary assets, make it attractive for institutional investors as well as long-term owners. It is therefore natural that Ether’s status as an independent asset will continue to gain support.
Eileen Wilson –Technology and Energy
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