Monday, April 22, 2019

Altcoin Prices Becoming Increasingly Dependent on Bitcoin

No doubts, Bitcoin (BTC) has always stood out as an uncorrelated asset. This suggests that Bitcoin is unaffected by the happenings of the global market. If in the event of a crash in the stock market, Bitcoin may remain unaffected or could even rise in price.

Altcoins Sharing Links with Bitcoin

Coin Metrics provided a chart which shows the correlation between various altcoins and Bitcoin. Here is the explanation: altcoins approaching 1 are more correlated with Bitcoin, altcoins that are around 0 shares no correlation with Bitcoin, and the altcoins near to -1 are inversely correlated with Bitcoin. This is the Spearman’s rank correlation coefficient.

From the chart, it can be seen that the major altcoins all move the same way Bitcoin moves. In the past, various instances have shown the deviation of altcoins from the price movements of Bitcoin, but those cases are the opposition to the general trend instead of the rule.

Litecoin has over the years been closely linked to Bitcoin. Launched in 2011, Litecoin is mostly regarded as a testnet for features that may become a part of Bitcoin eventually.

Now, Where Can The Outliers Be Found?

To acquire a digital asset that will not follow Bitcoin closely, the risk involved is actually on the very high side. The best option in this category could be small-cap altcoins, but even those have over the last year been closely correlated to Bitcoin.

It is true that these altcoins with lesser value can increase in value at any time without any significant reason, but in the same way, they can also cease to exist overnight. They are more prone to 51% attacks, overall legitimacy and centralization, which makes them high risk.

BitTorrent (BTT) is one coin going against the grain, and so far in February, it has doubled its bitcoin-denominated value. Yet, there exist other basic issues that classify this coin as an unreliable store of value for a long period.

Bitcoin Cash (BCH) and Ethereum (ETH) can be considered as the best examples in this regard. The record for the most solid negative correlation with Bitcoin (BTC) by a well-known altcoin was ETH in May ending of the year 2016, which fell around the time the hack of Ethereum’s The DAO occurred. In order to be a part of Ethereum’s DAO, a lot of movement into ETH was witnessed, and in the same way, at the hack of The DAO, BTC became a place of safety, and as a result, there was a massive movement from ETH to BTC.

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