Correlation between Bitcoin and Ethereum

Bitcoin (red line on chart) and Ethereum (candlesticks) move together.

The chart starts in June 2016 when Bitcoin was in the $600s. Ethereum obviously is showing the ICO boom and bust. As things have shaken out over the past 3 years, we’re roughly at the same valuations we were at 3 years ago. The crypto world has changed and matured so much over the past 3 years. Ethereum 2.0 is upon us, DeFi is poised to keep growing exponentially (post 2.0), and there are more and more plans to tokenize many assets on Ethereum being planned by many companies. The idea of smart contracts truly being programmable stores of value is maturing. Essentially, Ethereum can one day have countless tokens from countless companies on Ethereum. This vision is very powerful and if accomplished, will probably drive Ethereum’s value much higher. That being said, Crypto Financial Planning is showing Ethereum to be moderately overbought on a long-term basis. It is ok to buy Ethereum, but buyers should be aware that buying now could lead to some modest downside risk as there could be some short-term downside mean reversion. While the future looks bright for Ethereum, it is important to track the volatility to help inform potential times to sell and the best times to buy.

Similar to Ethereum because of the correlation, Bitcoin is also showing to be moderately overbought. Same logic — buying Bitcoin now means you could experience some short-term downside risk. But, as a long-term store of value, Bitcoin seems poised as a prudent long-term investment.

Crypto Financial Planning plans to explore other cryptocurrencies in future posts. There are many interesting competitors to Ethereum such as Dfinity, Stellar, EOS, Cardano, Ripple (XRP), and others. As of now, Ethereum has the most development, but it is important to study the competitive landscape on an on-going basis, which we will do at Crypto Financial Planning.