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## TL; DR
The <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a> halving event expected in 2024 could be driving the price of BTC up.

The correlation coefficient between BTC and ETH fell by 18% in January 2023. 

The supply of ETH on the exchange increased in January while that of BTC decreased. 

## Introduction
Since the beginning of 2023 the market sentiment has become more positive than in 2022 due to changing macroeconomic variables which include inflation and interest rates. The possibility that the Federal Reserve will lower interest rate as well as the slight decrease in inflation rate in the United States has created a hope for a better crypto year- 2023. 

Already, we have witnessed an uptrend of major cryptocurrencies, especially <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a> and Ether in January. However, the two largest net positions in cryptocurrencies on exchanges have moved away from each other. This is because there has been a fall in the correlation between the two, <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a> and ETH. This article covers the change in the net positions of BTC and ETH and the reasons why their correlation is falling. 

## Performance of <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a> and ETH in 2023
For us to better understand the current market dynamics, let's analyze the performance of BTC and ETH in the first two months of 2023. As at 11 February 2023, the price of <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a> was [slightly above $21,000](https://www.gate.io/blog_detail/2047/5-things-you-need-to-know-about-the-crypto-market-this-week "slightly above $21,000"), although it traded above $23,000 within the previous two weeks. In fact, it crossed above the $23,000 level on 21 January. 

Some analysts believe that the current <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a> uptrend could be a result of the next halving event that [will occur in 2024](https://www.gate.io/article/28944/gate.io-blog-btc-will-surpass-100k-after-the-2024-btc-halving-event "will occur in 2024"). Usually, BTC start rallying about one year before the halving event and more than a year after that event.  

The other possible reason for the current rally is the slight fall in inflation rate in the United States which may help to stop interest rate hikes. These factors create an environment which is conducive to crypto investment. 

The other contributing factor is the accumulation of BTC [by bitcoin whales](https://www.gate.io/blog_detail/1340/What-are-crypto-whales-and-how-do-you-track-them "by bitcoin whales"). According to Santiment, the on-chain aggregator, <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a> whales have been recently purchasing and holding large amounts of BTC which is a sign of a potential recovery. 

Similar to <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a>, ETH has experienced high buying pressure since the start of the year. However, it has not been as bullish as <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a>, as it gained by a lower margin. This could explain the difference in their net positions on the exchanges. 

## What is the net asset position on the stock exchange? 
The net asset position of a stock is the difference between the initial cost of setting up a position and its current trading value. For instance, if 1,000 options were purchased at $2.00 each and are trading at $10.00 each, the net position is $10,000 minus $2,000 which is equal to $8,000. 

## <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a> vs. ETH net position change
In crypto terms, the asset’s net position is the difference between the value of withdrawals and deposits. Therefore, the crypto net position changes reflect the fluctuations in the inflow and outflow of the asset on the exchanges. For example, an increase in the inflow of an asset on the exchange indicates a rise in its selling pressure. The following diagram shows the decrease in BTC inflows from January 24 to February 5. 

![](https://gimg2.gateimg.com/image/article/167826489610851678264645_.pic.jpg)
Decrease of inflow of BTC- Chainanalysis

This decrease in the inflow of BTC indicates that there is a decline in its selling pressure. The next graph helps us to have a clearer picture of BTC market sentiment. 

![](https://gimg2.gateimg.com/image/article/167826492410861678264659_.pic.jpg)
Decrease in amount of BTC on exchanges- Chainanalysis 

As observed in the diagram above, there has been a decrease in BTC on the exchanges. This means that there is a fall in the number of participants who want to sell it. The state is different from that of ETH. The next graph shows an increase in the amount of ETH on the exchanges at the end of January 2023. 

![](https://gimg2.gateimg.com/image/article/167826494910871678264667_.pic.jpg)
Increase in amount of ETH on exchanges-Chainanalysis

As shown in the diagram, between January 14 and January 30 the volume of ETH on the exchanges was lower than that of between 31 January and 5 February. This shows the separation of <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a> and Ether in terms of their quantities on exchanges. In other words, there is crypto market divergence. 

## <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a> vs Ether net position changes 
The net position changes of BTC and ETH on the exchanges have been in separation since the beginning of 2023. This is because  the supply of BTC on the exchange is declining while that [of ETH is increasing](https://www.gate.io/es/blog_detail/2073/daily-news-crypto-market-begins-to-descend-further-as-stock-market-follows-suit-vitalik-buterin-divulges-the-final-challenge-for-ethereum "of ETH is increasing"). The following diagram shows the changes in the net position of BTC on the exchanges. 

![](https://gimg2.gateimg.com/image/article/167826499410881678264675_.pic.jpg)
<a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a>’s net position- Coindesk

The diagram clearly shows a decrease in the net position of BTC. The situation is  different from that of ETH as indicated in the next diagram.

![](https://gimg2.gateimg.com/image/article/167826501510891678264683_.pic.jpg)
ETH’s net position on exchanges- Coindesk

On the diagram you can observe an increase in the supply of ETH shown by the green bars at the end of <a href="/price/the-graph-grt" target="_blank" class="blog_inner_link">The Graph</a>. This <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a> and Ether differentiation could arise from the perception of the market. More specifically, the crypto users could be viewing <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a> and ETH as substitutes, where most of them prefer BTC to ETH. 

## <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a> vs. Eth: the fall in the correlation
Another explanation for the separate paths <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a> and Ether are taking could be a fall in their correlation. The [correlation coefficient for Bitcoin and ETH](https://www.gate.io/article/28405 "correlation coefficient for Bitcoin and ETH") has fallen by 18% since January 23. As explained earlier, the approaching date of the halving event could be a reason for this. The first mover advantage may also influence the current market dynamics of BTC and ETH. 

## Conclusion 
In short, both <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a> and ETH have experienced a bullish momentum since the start of 2023. However, <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a> gained by a higher margin than ETH. On the other hand, the supply of ETH increased during the last days of January while that of BTC decreased. This is one reason that shows that the crypto market trends could be changing in 2023. Also, the opposite direction of <a href="/price/bitcoin-btc" target="_blank" class="blog_inner_link">Bitcoin</a> and Ether is evident in the fall of their correlation coefficient.



<div class="blog-details-info">
<div>Author:** Mashell C.**, Gate.io Researcher
<div class="info-tips">\*This article represents only the views of the researcher and does not constitute any investment suggestions.
<div>\*Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.
</div>


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What caused the differentiation between bitcoin and ETH? We discuss the reasons for the falling correlation between ETH and BTC as well as the crypto market trends for 2023.

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Bitcoin and Ether have Gone their Separate ways – this is Becoming an Opportunity for Crypto Investors in 2023