Cryptocurrencies are new assets compared to traditional means of exchange and stores of value. The ratio of the prices of the two most common metallic value storage vehicles, gold and silver, has been extensively studied and used to optimize holdings. At the same time, rigorous academic studies on the topic seem to be relatively few. There are publications on the camp of price relation stability and the opposite, as illustrated by these two:
"On the long-run relationship between gold and silver prices A note, September 2001, Global Finance Journal 12(2)"
"Investigating the Relationship between Gold and Silver Prices, A. Escribano, C. Granger, 1998, Journal of Forecasting"
It is surprising that such two assets, which should be close substitutes in the value storage market, lead to a troublesome relationship, industrial usage notwithstanding. We do not have the centuries-old history of gold and silver analog for cryptocurrencies. We have less than a decade of trading data that can be used to perform this relation study. It may not be of use today, and as history unfolds, the relation between the most traded cryptocurrencies may generate predictive power.
We will substitute gold and silver with the exchange rate of Bitcoin to Euro (BTCEUR) and Ethereum to Euro (ETHEUR) and investigate what has happened so far and what is happening now. We will not venture into any future prediction at this point. We will assume that the industrial usage that may separate the price behavior of gold and silver is less obtrusive into their ratio for these two cryptocurrencies, architectural and block information-carrying capacity notwithstanding.
For the history we can easily access these have been the separate price behaviors of BTCEUR and ETHEUR:
The price behavior has been very similar; crypto-bubbles and crypto-busts have been very similar for both volume leaders, history has been slightly kinder peak-to-peak for BTC than for ETH. Normalizing both, we find this image:
Ethereum weaves around BTC. It also lagged BTC a little bit three years ago during the bubble correction, when we thought that the economy and the markets (stocks, bonds) were crazy, then 2020 came with the maximum volatilities in decades. The ratio for ETH/BTC has been:
This is where we can see the steady decoupling. If these two assets are indeed close substitutes, this ratio is wrong. It was either wrong in the 2018 highs, or it is wrong now. Let us take the same look to the recent history, one year from today, at a higher resolution, in order: prices, normalized prices, and ratio:
ETH runs around both above and below BTC. In the past year, the ratio has practically doubled. It is very hard to say, given that these assets are in their statistical infancy, what this means for the future. It surely shows momentum for ETH when compared to BTC. It is worth keeping an eye on this ratio, monitor its evolution. As soon as it becomes statistically actionable for a wider range of risk-reward appetites (far too risky at this point), there will be a time window to obtain profits using this ratio before it gets completely arbitraged away.
The times for accurate pricing ratio judgment for cryptocurrencies are still not here, their usage and characteristics are still to be validated. Even if it seems that ETH will rise compared to BTC, the opposite may be equally true.
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