The statistical analysis of the blockchain analytics company Santiment shows that Ethereum’s price and the S&P500 Index are closely correlated.
Ethereum’s association with stocks is greater than that of Bitcoin as the former derives its demand from smart contracts and NFTs, while the latter is perceived as a store of value.
The recent months have displayed the rapid decline in prices observed during February 17th-23rd. The depreciation of ETH and stocks equaled more than 25%. However, their prices increased in the following several days (until March 2nd) due to investors’ growing optimism: the increase constituted up to 30%.
Ultimately, the past week depicts the correction with stable prices of Ethereum-based tokens and S&P 500 stocks. In all these cases, the direction of price changes of ETH and stocks is the same. Santiment’s analysts contrast it with the price movements of gold that has continued to appreciate sustainably in recent months.
Gold is viewed as a risk-free asset suitable for long-term investments. In contrast, cryptocurrencies remain more risky investments for many individuals, making their price movements similar to stocks. The major macroeconomic factors, such as the Russia-Ukraine crisis and the Federal Reserve’s policy affect investors’ demand for ETH.
According to CoinMetrics, the correlation coefficient between BTC and ETH remains at a very high level of 0.9. The lower correlation between Bitcoin and S&P500 Index means that it also serves as a store of value for many holders.
The reduced BTC price variations illustrate the growing number of long-term investors, pursuing the HODL strategy. Bitcoin also shows a closer correlation with gold as compared with Ethereum due to its limited supply and element of major investment portfolios.
A part of the demand for hi-tech stocks also includes smart contracts and dApps that widely utilize Ethereum’s network. Therefore, stocks and Ethereum’s prices have followed the same cycles in the past months. Santiment’s analysis confirms the formation of a more diverse crypto market with BTC, ETH, and other cryptocurrencies performing complementary functions.
Ethereum and proof-of-stake tokens (such as Solana, Polkadot, and Avalanche) demonstrate higher variability and profit-generation opportunities but their long-term risks are also higher. In contrast, Bitcoin is mostly used for reducing risks and assuring the strategic portfolio’s appreciation. In the absence of clear bullish and bearish signals, the correlation between cryptocurrencies, gold, and the S&P500 Index may be one of the main factors that will affect the points of investors’ entry when opening short and long positions.