Token pair quoting
Why are both ETH and BTC quoted against the same stablecoin, and what does that let a trader compare?
In plain words
A token pair quoting convention states an asset's price in a chosen quote currency. Here both BTC and ETH are priced in the same stablecoin, a token meant to hold a steady value against the dollar. All ETH and BTC prices therefore share one unit, so they can be compared directly.
Why it matters
When two assets share a quote currency, a change in both prices mostly reflects moves in the assets themselves rather than in the measuring unit. A trader can compare returns in the same currency, compute a price ratio from two market prices, and read funding payments, which are also settled in the quote currency, as real cash costs or income.
In a real week: ETH, week of 14 August 2023
In the week of 14 August 2023, ETH fell 8.45% while both assets moved in the same direction, with BTC making the larger weekly move. Measured in the same stablecoin unit, ETH gained 2.18 percentage points relative to BTC, and the ETH/BTC ratio changed 2.44%. The weekly hourly correlation between the two was 0.94, labelled very close, and ETH's average 8-hour funding rate was 0.0028%, with a maximum of 0.01% and a minimum of -0.0175%.
A common mistake
Assuming the quote currency is neutral. A stablecoin can itself lose its steady value, which would move both quoted prices together and could make two assets look correlated when the shared quote is doing part of the work.