The relationship between Bitcoin (BTC) and Ethereum (ETH) has long been a cornerstone of digital asset market dynamics. Historically, their price movements have moved in near lockstep, with correlation coefficients often exceeding 0.90 over rolling windows. However, a notable shift has emerged since mid-to-late March 2025: the correlation between BTC and ETH daily returns has begun to decline, signaling potential structural changes in market behavior, regulatory perception, and network fundamentals.
As of April 20, the 40-day rolling correlation between BTC and ETH returns stood at 0.82, down from 0.95 just thirty days prior. This dip falls below the 12-month average of 0.90 and marks the lowest level since January’s temporary drop to 0.85. The weakening correlation echoes a similar trend observed during Ethereum’s Merge in September 2022, when the network transitioned to proof-of-stake and saw its correlation with BTC fall to 0.75 for nearly seven weeks.
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Why Is BTC-ETH Correlation Declining?
Several interrelated factors are driving this decoupling:
1. Regulatory Differentiation
Bitcoin is increasingly perceived as a distinct asset class—closer to digital gold—while non-Bitcoin cryptocurrencies, including Ethereum, face heightened scrutiny. Recent regulatory ambiguity, particularly following SEC Chair Gary Gensler’s evasive testimony before Congress on April 18, has intensified uncertainty around ETH’s classification. When asked directly whether Ethereum is a security or commodity, Gensler declined to answer, leaving institutional investors cautious about ETH exposure.
This regulatory bifurcation may be accelerating capital rotation into BTC, reinforcing its outperformance and contributing to the widening correlation gap.
2. Post-Shapella Dynamics
The Shanghai (Shapella) upgrade, which enabled ETH withdrawals from staking contracts, introduced new supply dynamics. As of April 20, an estimated 73,000 ETH could be unlocked via partial withdrawals and 822,000 ETH through full unstaking—amounts that could take up to 15 days to process. With full withdrawals now dominating the queue, selling pressure has increased, particularly as staking rewards and principal returns enter circulation.
Despite initial optimism—evidenced by deposit volumes briefly surpassing withdrawals—Thursday’s processing of full withdrawals led to a sharp decline in the ETH staking ratio, likely weighing on price action.
3. Divergent Network Developments
While BTC and ETH have traditionally moved together on macro sentiment, their underlying ecosystems are evolving independently.
Bitcoin Innovation: Lightning Network Expansion
Recent developments in Bitcoin infrastructure signal growing maturity:
- Lightspark, a Bitcoin-focused infrastructure firm backed by former PayPal executive David Marcus, launched new tools to enhance Lightning Network adoption. These include enterprise-grade APIs, simplified liquidity access, and capital efficiency solutions—addressing key friction points that have historically limited broader Lightning usage.
- Civ Kit, a newly proposed peer-to-peer marketplace system built on Nostr and the Lightning Network, introduces censorship-resistant trade via HTLCs and a zero-knowledge proof-based reputation system to combat spam.
These innovations underscore Bitcoin’s expanding utility beyond store-of-value narratives.
Ethereum’s Evolving Role
Meanwhile, Ethereum continues its transition into a more complex, application-layer platform:
- Zero-knowledge rollups are gaining traction, improving scalability and privacy.
- Institutional interest in ZkEVM technology is rising, with potential implications for enterprise adoption.
Such divergent developmental paths support the argument that BTC and ETH should be viewed as fundamentally different assets—justifying lower correlation from a fundamentals perspective.
Market Implications for Investors
The declining correlation presents both challenges and opportunities:
For Quantitative Strategies
Cross-hedging strategies that rely on high BTC-ETH correlation may need recalibration. Traders using ETH as a proxy hedge for less liquid altcoins should reassess risk exposure given increased idiosyncratic volatility.
For Portfolio Diversification
From a strategic asset allocation standpoint, reduced correlation strengthens the case for holding both assets. Lower co-movement enhances portfolio diversification benefits, especially during periods of macro stress or regulatory flux.
Macro & On-Chain Snapshot (as of April 20, 4 PM EDT)
- BTC: $28,093 | Market Cap: $558B | 24h: -2.41% | 7d: -3.12%
- ETH: $1,930 | Market Cap: $231B | 24h: -0.30% | 7d: +1.96%
- Gold (Spot): $2,005 | BTC Correlation: 17%
- S&P 500: 4,129 | BTC Correlation: 35%
Notably, stablecoins remain resilient:
- USDT: $1.00 | $82.43B market cap
- USDC: $1.00 | $31.4B market cap
Financing rates across CeFi and DeFi show moderate spreads:
- USD Overnight: TradFi 4.75% | CeFi Max 7.50% | DeFi 2.30%
- ETH Funding: CeFi up to 7.00% | DeFi at 1.46%
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Global Regulatory Milestones
Asia
A Hong Kong court recently ruled that cryptocurrency qualifies as property and can be held in trust—a landmark decision tied to the defunct Gatecoin exchange case. This aligns with legal precedents in China and the UK, where crypto is increasingly recognized under existing property frameworks.
Europe
The European Parliament approved the Markets in Crypto-Assets (MiCA) regulation on April 20, establishing the first comprehensive EU-wide crypto regulatory framework. Once published in the Official Journal (expected June 2025), rules will phase in over 12–18 months, enabling exchanges and service providers to register under EBA and ESMA oversight.
The Week Ahead: Key Dates to Watch
- April 25: US Consumer Confidence, Microsoft & Alphabet earnings
- April 27: US GDP data release
- April 28: US PCE Index, BOJ policy decision
- April 24: DESO network hard fork
Traditional hedge funds turned net sellers this week on both BTC and ETH, locking in profits after recent rallies. Altcoin sentiment remains weak amid recession fears and regulatory uncertainty.
Frequently Asked Questions (FAQ)
Q: What does a falling BTC-ETH correlation mean for traders?
A: It suggests increasing divergence in market behavior, reducing the effectiveness of cross-asset hedging strategies and highlighting unique supply-demand dynamics for each network.
Q: How long might the low correlation last?
A: Historical precedent from the Merge period suggests attenuation could persist for 6–8 weeks. Given Shapella’s withdrawal cycle is still unfolding, another two weeks of low correlation is plausible.
Q: Is Ethereum still safe to stake post-Shapella?
A: Yes—staking remains secure and functional. However, investors should monitor unstaking volume and reinvestment rates to assess net supply pressure.
Q: Could regulatory clarity boost ETH prices?
A: Absolutely. Clear classification of ETH as a commodity would likely alleviate regulatory risk premiums and attract institutional inflows.
Q: Does lower correlation benefit portfolio construction?
A: Yes—it enhances diversification potential, allowing investors to capture asymmetric upside from each ecosystem without full co-movement risk.
Q: What role do zk-rollups play in Ethereum’s future?
A: Zero-knowledge rollups are critical for scaling Ethereum sustainably, enabling faster transactions and lower fees while preserving security—key for enterprise adoption.
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