A ‘spooky’ Ethereum correlation suggests an imminent breakout

Ethereum has been highly correlated with small-cap equities, which are very sensitive to interest rates, and analysts say both could move higher with more cuts on the horizon.

Analysts at macro investor outlet Milk Road said on Tuesday that there is an “almost spooky” correlation between Ether (ETH) and the Russell 2000 Index, which comprises small-cap equities.

Both are highly sensitive to interest rates, and with as many as four consecutive cuts potentially on the horizon, the analysts said to “expect both of them to move up in tandem.”

The Russell 2000 Index tracks 2,000 US public companies with a small market capitalization and is widely used to gauge the performance of the US economy.

CME futures markets currently predict a 95.7% chance of another 0.25% rate cut by the Federal Reserve at its Oct. 29 meeting and an 82.2% probability of a further cut in December.

“Unlike Bitcoin, Ether generates yield, and that matters a lot in a world where rate cuts are not just priced in, but practically guaranteed,” Justin d’Anethan, head of partnerships at crypto private markets firm Arctic Digital, told Cointelegraph.

Source: Milk Road Macro

ETH and the Russell 2000 also appear to show a cup-and-handle pattern, a bullish continuation pattern that marks a consolidation period followed by a breakout.

Rotation into risk assets

MN Fund founder Michaël van de Poppe stated on Wednesday that there are two reasons why ETH will soon reach a new all-time high.

Firstly, the ETH/BTC trading pair “looks bottomed out” and is ready for a new leg upward, after a relatively normal correction.

Secondly, gold is “insanely parabolic,” after hitting a peak of over $4,000 per ounce, which means that it should be coming down at some point, “triggering the big risk-on switch.”

Related: Ethereum bulls tout supercycle, but Wall Street is skeptical

“If central banks globally move into easing mode, there’s a strong case for capital rotating into risk assets with upside, and ETH fits that profile,” d’Anethan added.

New Ether peak is close

“ETH looks primed to break into all-time high territory, as it’s finally finding stability above the $4,350s,” commented chart analyst Matt Hughes on Wednesday.

“As long as that zone continues to hold as support, ATHs aren’t too far away.”

Hughes targeted $5,200 as the next leg up for Ether, while analyst ‘Poseidon’ said the cycle top would be $8,500.

Ether had corrected at the time of writing, trading down 6% on the day at $4,430, and approaching a key support zone near $4,400.

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