Strengthening Ether-Nasdaq Correlation Muddles Post-Merge Bullish Plays: Cumberland
The Merge has skewed demand-supply dynamics in favor of the bulls. But, the strengthening correlation with Nasdaq means big gains may remain elusive in case of broad based risk aversion.
Ethereum’s recent technological overhaul, the Merge, has supposedly skewed demand-supply dynamics in favor of the ether (ETH) bulls.
However, those looking to capitalize on price-positive developments should consider ether’s increasing sensitivity to stocks, which makes the cryptocurrency vulnerable to broad-based risk aversion.
The 30-day correlation between ether and Nasdaq, Wall Street’s tech-heavy index, has strengthened from 0.58 to a four-month high of 0.765, according to data tracked by trading giant Cumberland. The correlation value of 0.7 and higher implies a significant positive relationship between the two.
“The ETH/Nasdaq [30-day] correlation is nearly back to the highs of the year – a feature which has overshadowed the idiosyncratic dynamics of the Merge (for now),” Cumberland tweeted on Tuesday.
In other words, weakness in Nasdaq could keep ether under pressure, disappointing those betting on big gains on the back of improved post-Merge fundamentals.
The Merge completely shifted the Ethereum blockchain to a proof-of-stake consensus mechanism from the proof-of-work mechanism, whereby miners solved complex transactions to solve complex algorithms to verify transactions in return for rewards received in ETH and regularly liquidated those to fund operations. According to Cumberland, the Ethereum miners used to liquidate some $100 million worth of ETH per week.
So, a significant chunk of miner selling has left the market since the Merge. If that’s not enough, ether’s daily issuance has declined by 95% since the technological change that has made Ethereum more environment-friendly.
While macroeconomic factors and inter-market correlations may play spoilsport in the short-term, Cumberland is optimistic that the drastic reduction in supply would eventually bode well for ether’s price.
Tag: Forex & Crypto News