The degree to which changes in the cost of goods and services priced in bitcoin are reflected is referred to as Bitcoin exchange rate pass-through (ERPT). Or, to put it another way, do companies raise their Bitcoin prices in response to a rise in the value of the currency, and vice versa?
To calculate the Bitcoin exchange rate pass-through, you can use the following formula:
To see the ERPT concept generically, let’s look at the followings:
For Example,
If the Bitcoin exchange rate increased by 10% and the Bitcoin-denominated price of a product decreased by 5%, the pass-through would be:
A pass-through of -0.5 indicates that for every 1% increase in the Bitcoin exchange rate, the Bitcoin-denominated price decreased by 0.5%.
Another Example
Suppose the US imports chocolates from France. Initially, the chocolates cost $20 each, and €1 costs $2. Later, the Euro appreciates against the dollar, and now €1 costs $2.40. Also, suppose that after this appreciation, the chocolates now cost $25.
There has been a 20% increase in the exchange rate, there has been a 25% increase in price.
The exchange Rate Pass-Through is %25 / %20 = 1.25
For every 1% increase in the Exchange Rate, there has been a 1.25% increase in the price of the chocolates.
In our analysis, we have tried to estimate Bitcoin to Ethereum transitivity. By using data from Yahoo Finance, we have seen that on average from US dollar value in Bitcoin to Ethereum price the pass-through rate is 1.7% on the opposite direction, from January 2018 to August 2023.
Moreover, we have additionally added three months averaging on our chart.
