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Ethereum (ETH/USD), the second-largest cryptocurrency by capitalization, has set a new all-time high (ATH) amid the renewed crypto market rally. Triggered by the listing of the ProShares Bitcoin Strategy ETF, the rally saw Bitcoin (BTC/USD), the leading crypto by capitalization, breach its previous ATH yesterday to peak at $66,930.39 (£48,475.34).
As is the norm with the crypto market, BTC’s performance has a spillover effect on the altcoin market. With BTC rallying to new heights, ETH soared past its May 12 ATH of $4,362.35 (£3,159.81) to set a new ATH at $4,366.09 (£3,162.34) earlier today. Like BTC, ETH suffered a slight downward correction after peaking.
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At the time of writing, ETH is changing hands at $4,229.22 (£3,065.15). This value represents a 3.31% drop from its ATH. This performance has also seen the market capitalization of ETH increase to $498,185,564,855.00 (£361,009,272,838.16).
According to Cryptowatch, the similarity in the price movements of BTC and ETH are due to the close correlation between the coins. At the moment, the coins have a correlation coefficient of 0.70. Notably, this correlation has been in place since the end of 2017, with an annual rate of 0.68.
Different factors are driving ETH’s and BTC’s gains
While the coin’s prices are correlated, BTC and ETH have distinct value propositions. BTC has secured its position as a store of value, an achievement that saw El Salvador embrace it as legal tender. This trait has also seen institutional investors swarm in its market.
On the other hand, Ethereum has positioned itself as a smart contract network. This has enabled the network to underpin the development of decentralized applications (dApps) for the decentralized finance (DeFi) sector and non-fungible tokens (NFTs). While these industries only gained recently, they have played a significant role in pushing ETH’s price higher.
For instance, the DeFi space, which allows people to lend, borrow, and swap assets without a financial intermediary, has grown tremendously over the past 15 months. At the end of August 2020, the space only held assets worth $5 billion (£3.63 billion). At the moment, Ethereum-based DeFi protocols have locked over $163.4 billion (£1.07 billion).
While NFTs have been present since the birth of CryptoKitties, they made headlines this year, with athletes, artists, and actors creating digital art. According to NFT-tracking site NonFungible.com, the sector has recorded a volume of over $2 billion (£1.45 billion) over the past 30 days.
With both industries performing bullishly, it is evident that ETH is not just piggyback riding BTC’s performance. However, with other altcoins green, it is safe to conclude that BTC still directs the direction the crypto market takes.