The correlation between Bitcoin and altcoins.

The correlation between Bitcoin and altcoins.

By MadMaxx | Crypto Fondue | 28 Jul 2020


Have you ever wondered why altcoins fall whenever Bitcoin rises. Or why altcoins fall when Bitcoin falls? Or why altcoins fall whenever Bitcoin does anything?

In this article, I'll explain why bitcoin controls the movements of altcoins. I'll also explain why the preferred movement for altcoins is down.

Let's get started!

Firstly, there are two important factors whenever we are discussing altcoins and Bitcoin.

  • The bitcoin dominance ratio
  • Altcoin market cap.

Many people do not understand thie concept of correlation between markets. As a matter of fact, there IS correlation between all markets, mostly because all markets are driven by the same emotions: Fear and Greed

The bitcoin dominance ratio is a calculated average of how much dominance bitcoin has over the entire crypto market. This ratio currently sits at 66%. Whenever this ratio goes down(like it did recently), altcoins have a swell time bouncing off their local support levels. However, whenever this ratio bounces off support(like yesterday, and the day before), it's a bloodbath for altcoins.

The second factor is the altcoin market cap. This is, well, the total market cap of the altcoin market.

Whenever this ratio rises, it means more money is flowing into altcoins, which is good for them. The opposite is the case for whenever the ratio falls.

Now, we can start to see a pattern here. Whenever Bitcoin's dominance on the market rises, the altcoins react to small moves that Bitcoin makes. Couple that with a decrease in alt market cap, and it's always a bloodbath for altcoins whenever Bitcoin moves.

The ideal situation for altcoins would be for the dominance ratio to go to zero. However, this won't be possible, because Bitcoin has all the market cap, and therefore all the control over the market.

However, an ideal and possible situation would be for the dominance to go to a number below 50%. That way ,big Bitcoin moves only have effects on the large cap alts, and small cap alts can continue moving.

I hope I've made this correlation clear.

If you enjoyed the article, a like and follow would be great. Thanks for reading.

 


MadMaxx
MadMaxx

In the eternal quest for crypto fulfilment. I'm an obese frog on the internet, what I say most definitely isn't financial advice.


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