Bear Market Leads to the Rise in Crypto Correlation
Recent analysis shows that levels crypto correlation have greatly increased lately, with Bitcoin (BTC) as a ringleader.
Bitcoin Controls The Prices Of Other Coins
One of the biggest differences between cryptos and conventional shares, stocks, and similar financial products lies in the fact that their prices are very closely correlated. This makes almost all cryptos influenced by pretty much the same factors.
A recent analysis of the data that was collected by Sifr has shown that up to 14 of its coins are moving in the same way as Bitcoin does. This has gone on for over a year now, and Bitcoin has been influencing even the top cryptos, like Ethereum (ETH), Ripple (XRP), and Litecoin (LTC), among others.
The greatest increase in crypto prices came in a period between last year's August and this year's February. This is the period when crypto prices skyrocketed, led by Bitcoin, which managed to hit previously unrecorded heights, going as high as $20,000 per coin. However, Bitcoin was not the only coin that acted this way, and even though no other coin managed to even come close to its value, they all seemed to jump when Bitcoin said so.
This was also witnessed in the second half of January 2018, when Bitcoin's price dropped down, and the entire market followed. The result of this change was the total market cap going from $800 billion to only $290 billion by February.
However, the data analysis also showed that the correlation is not always the same and that it is much higher when the prices are going down, than when they are rising. This kind of behavior was once again noticed in the second half of July of this year when BTC jumped from $6,300 to almost $8,400 in a matter of days. However, the price surge was interrupted by the SEC's announcement that it will delay the BTC ETF decision, which caused a large price drop once more.
The Bitcoin Effect
Bitcoin's nature and high profile are making it the most attractive option for investors, both new and experienced ones. As the first and most popular and well-known crypto, its influence on altcoins is huge. The most recent example of this is this very week after the coin dropped right back down to $6,300 after the SEC confirmed that the ETF decision is moved once more.
However, the real influence that BTC has over other cryptos can be seen when we take a look at what happened to the market cap following the announcement. Within the first 24 hours after the SEC announced another delay, the crypto market cap lost as much as $34 billion. Obviously, Bitcoin was the epicenter, and its dominance was once again confirmed. What this means is that we have almost an official confirmation that whatever news influence BTC, will certainly influence the rest of the crypto world.
However, some details of the analysis indicate that Bitcoin might also be losing its grip. While a lot of big coins lost a significant chunk of their value when BTC went down, many others lost surprisingly lower amounts. This might make these coins more attractive to investors, and those that are already a part of their community will likely decide to stay put.
This change in perception might lead to other coins rising in dominance, like Ethereum, for example, which experienced much lower losses. While founders and creators of the coins are urging the communities to consider all aspects of the coins, their price still remains the most popular factor in determining their overall value.
However, this is probably not a good thing, considering how their value depends on Bitcoin, and possibly other big currencies. As the point of view changes to all aspects surrounding each individual coin, and not just its price, it is expected that the volatility will decrease, and that correlation will follow as well. At that point, BTC will no longer dictate the behavior of the entire market, and cryptos might finally reach higher levels of stability.