Ethereum (ETH), the leading altcoin, has endured an intense sell-off over the past few weeks, and Tom Lee, Wall Street's famed permabull, knows the reason behind this underperformance.
According to Lee, the prominent head of research at Fundstrat Global Advisors, the traditional commodities market is to blame for the sorry state of ETH.
The Fudstrat boss recently took to the X social media network to share his analysis, noting that surging oil prices are currently the "biggest headwind" for the second-largest cryptocurrency.
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If one is wondering why Ethereum $ETH has been under selling pressure:
- to me, rising oil prices is the biggest headwind
- ETH inverse correlation to oil is the highest ever pic.twitter.com/G5Uw0wbtJP
An unprecedented inverse correlation
Lee has pointed to a historic divergence between the two assets.
A Bloomberg terminal chart shared by Lee tracks the rolling daily correlation between Ethereum and crude oil dating back to 2018.
Historically, the correlation between ETH and oil has fluctuated, oscillating between positive correlation (as high as +0.40) and mild inverse correlation (represented by red dips).
However, the current price action of these two assets is completely anomalous.
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A massive red cliff at the far right of the chart shows that the inverse correlation between Ethereum and oil has plunged to roughly -0.40 (the highest level of negative correlation ever). Simply put, as oil prices surge upward, Ethereum is being sold off.
The two lines track each other with eerie precision. From mid-April through May, every localized spike in oil is matched by a drop in Ethereum's price. A plunge in the inverted oil line mirrors Ethereum's recent steep sell-off almost perfectly.
An eventual reversal in oil prices will likely be a powerful price catalyst for Ethereum (ETH).
Tactical noise
Lee, who spearheads ETH treasury giant Bitmine, remains highly bullish on Ethereum in the long term despite temporary headwinds.
The permabull views the current price action merely as "short-term tactical noise".
Lee has stressed that true macroeconomic drivers for the leading altcoins remain firmly intact despite the poor performance of the altcoin.
Fundstrat expects Ethereum prices to end up rallying because of this once energy markets calm down.
In the meantime, ETH/BTC recently plunged to 0.027, the lowest level since mid-July.
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