Have you ever been curious how every major crypto can follow the Bitcoin price so closely. Bitcoin moves, everything follows, sometimes within nanoseconds, up or down it does not matter. This price correlation is rarely broken, and Ive never seen anyone give a logical reason how or why this happens. Ive come up with a couple possibilities including one that I believe is more likely than any other.
1. Does each exchange have a bot that gathers information from each cryptocurrency on its market (Volume, Orders, etc.), plugging this info into an algorithum, with a weighted importance on the Bitcoin price? Would this explain the price correlation? Could this also explain the discrepancies that we sometimes see between exchanges?
- I dont believe this is the reason for the correlation and havent seen anything to backup this hypothesis. It does raise some interesting questions. How can prices vary for different exchanges? How are the prices for cryptocurrency reasoned or calculated? Look for these in upcoming articles as well.
2. When trading crypto, you can trade the dollar pairing, but also the Bitcoin pair, Ethereum pair, Tether pair and many others. Does the Bitcoin pairing create the price correlation of the Altcoin market to Bitcoin?
- I think the large amount of trading that occurs with the Bitcoin pairing plays a major, if not singular role in the price correlation between major Alts and Bitcoin. This Bitcoin pair trading creates liquidity between the assests being traded, Altcoins to Bitcoin. This liquidity is what I believe ties them together as well as sentiment, but on a longer time scale. If this hypothesis is true then the price correlation would disappear if everyone discontinued using the BTC/Altcoin pairing when trading.
I hope this inspires you or least motivates you to dive into your questions about crypto. These are my thoughts, which I believe are the reasons for the symmetry in price movement of Altcoins and Bitcoin. What are your thoughts? This is one of the many questions I am always looking for answers to, and will update as I form more and better ideas.