Asset correlations can put many investors on edge, and sometimes rightfully so. For several months, analysts have been investigating and criticizing Bitcoin for its correlation with more traditional non-crypto stocks, fearing it could affect its status as an inflation hedge. That said, new data from Santiment suggests that the crypto asset to watch may be the best altcoin instead.
Mind the business you keep
The correlation of Ethereum with the S&P500 is easy to see here: the two dived together on March 31, but started to rise again after April 1. The Federal Reserve did say it was going to raise interest rates for the first time since 2018. When the SP500 rose from mid-March, so did Ether.
However, conditions do apply. While the two may rise together, a greater correlation means that any negative press or FUD regarding the Federal Reserve affecting the S&P500 could also affect Ether’s own recovery.
#Ethereumnot #Bitcoinis the most important asset that remains closely correlated to the #SP500‘s performance. And since the #FOMC announcement 3 weeks ago, this was good news for $ETH† see if #fed news causes downswings for the May #FOMC Updating. https://t.co/VHXMQAKhUZ pic.twitter.com/VsFdCHqsFi
— Santiment (@santimentfeed) Apr 4, 2022
But that’s not all in the world of Ethereum. Glassnode data further showed that investors want to invest in Ether and other altcoins – above Bitcoin itself.
#Bitcoin traded volume down -26% in Q1 2022 as per Q1 2021.
— (@Negentropic_) Apr 4, 2022
To prove this, take a look at the declining supply of Ether on exchanges, which even fell below late January levels.
Part of this interest can be attributed to the safe completion of the Kiln testnet merge. Otherwise dizzying rallies and cumulative returns from altcoin projects like Terra [LUNA] have also attracted the attention of investors.
Keep your friends close and your enemies closer
Investors may be in the mood to shop, but that doesn’t mean selling is a distant dream. The adjusted price DAA divergence revealed that the bright green bars shortened and darkened with ETH’s rally. This indicates that there could be an imminent shift in signals. Those who play it cautiously will probably want to keep an eye on this stat to make sure they aren’t caught off guard by sudden liquidations.
A DEVIL of a time
Price aside, let’s take a look at development activity – the bread and butter of crypto’s largest smart contract platform. While ETH has a steep slope, development activity has slowed down since mid-March and moved largely sideways.
Those who are investing not only in Ether, but in the future of Ethereum would do well to follow the Federal Reserve’s updates as well as crypto news.
This post ETH, SP500 and the Fed – what their moves mean for crypto investors
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