Asset correlations can put a lot of investors on edge, and sometimes, rightly so. For several months, analysts were probing and critiquing Bitcoin for its correlation to more traditional non-crypto stocks, worrying this might affect its status as an inflation hedge. That being said, new data from Santiment suggests that the crypto asset to watch might actually be the top altcoin instead.
Watch the company you keep
Ethereum’s correlation to the S&P500 is easy to see here: the two dipped together on 31 March but started rising again post 1 April. The Federal Reserve did say it was going to raise interest rates, for the first time since 2018. As the SP500 rallied from mid-March, so did Ether.
However, terms and conditions apply. While the two might be rising together, a greater correlation means that any negative press or FUD related to the Federal Reserve that affects the S&P500 could also affect Ether’s own recovery.
📊 #Ethereum, not #Bitcoin, is the top asset staying tightly correlated to the #SP500's performance. And since the #FOMC announcement 3 weeks ago, this has been good news for $ETH. Watch if #fed news causes any downswings for the May #FOMC update. https://t.co/VHXMQAKhUZ pic.twitter.com/VsFdCHqsFi
— Santiment (@santimentfeed) April 4, 2022
But that’s not all in Ethereum’s world. Glassnode data further showed that investors are looking to invest in Ether and other altcoins – over Bitcoin itself.
#Bitcoin traded volume down -26% in Q1 2022 as per Q1 2021.
— 𝗡𝗲𝗴𝗲𝗻𝘁𝗿𝗼𝗽𝗶𝗰 (@Negentropic_) April 4, 2022
To prove this, take a look at the falling supply of Ether on exchanges, going below levels seen even in late January.
Part of this interest can be attributed to the safe conclusion of the Kiln testnet merge. Otherwise, dazzling rallies and cumulative returns from altcoin projects like Terra [LUNA] have also captured investors’ attention.
Keep your friends close, and your enemies closer
Investors may be in a mood to shop, but that doesn’t mean selling is a distant dream. The Adjusted Price DAA Divergence revealed the bright green bars growing shorter and darker with ETH’s rally. This hints that there could be an upcoming shift in signals. Those who are playing it cautious will probably want to keep an eye on this metric to make sure they aren’t caught off-guard by sudden liquidations.
A DEVil of a time
Stepping away from price, let’s look at development activity – the bread and butter of crypto’s largest smart contracts platform. While ETH has been on a steep incline, development activity has gone down since mid-March and was largely moving sideways.
Those who are invested in not just Ether but the future of Ethereum would be well-advised to follow Federal Reserve updates as well as crypto news.