Global cryptocurrency investors have been facing More than a month of challenge time This is largely due to the unprecedented price drop of the most prominent digital currency on the market.
Since the beginning of June, the total market value of this relatively nascent space has Dip From a little over US$1.8 trillion to approximately US$1.3 trillion, the loss is more than 40%.
One thing worth noting is that as the market fell and showed signs of contraction, Bitcoin (Bitcoin) Continues to show up with the ether (Ethereum) And the broader altcoin market. Explaining this in detail, it can be seen that the correlation between BTC and ETH has continued to hover around the 0.8 mark in the past 30 days.
In order to better understand what these numbers represent, it should be emphasized that a value between 0 and 0.3 indicates that there is almost no correlation between the two assets, while a value between 0.3 and 0.5 indicates a low correlation . On the other hand, once the above indicators exceed the 0.5 mark, it will become a field of high-value interdependence. For example, a value between 0.5 and 0.7 indicates a medium correlation, while a value higher than 0.8 indicates an extremely high degree of currency correlation.
What does it mean?
So, is this correlation bad for the cryptocurrency market and those who hold or trade coins? Leo Cheng, the co-founder of CREAM Finance, a decentralized lending protocol, told Cointelegraph that although BTC has always been considered the most powerful and secure store of value in the global encryption field, since April, Ethereum and many other altcoins A lot of value associated with the world’s largest cryptocurrency has been obtained. He added:
“As part of this pullback, it’s not surprising to see funds flow back to BTC. Altcoins have historically been highly correlated and follow in the footsteps of ETH. Considering the term’productive assets’, many people have been What is surprising is how the memecoin performs better than DeFi tokens.”
Cheng further pointed out that in addition to price fluctuations, various adoption indicators related to the crypto market, such as the total number of users and network activity, continue to hit record highs. “Builders in the encryption field have not stopped construction. The market pullback will reduce noise and provide room for innovation for builders,” he said.
Similarly, Antoni Trenchev, CEO of the digital asset platform Nexo, told Cointelegraph that the latest episode China’s continuing love-hate relationship with cryptocurrencies The price of Bitcoin has been lowered, but it has set a bad pattern for other markets. He added:
“When news like this emerges and Bitcoin reacts, it usually has serious consequences for the wider cryptocurrency sector. In addition, there are only a few alternatives in the orbit of BTC, which will continue to soar in 2020. , Mainly because DeFi projects experienced exponential growth in the so-called DeFi summer.”
Finally, Trenchev believes that if Inflation rate continues to rise After hitting a record high in May, he expects that cryptocurrencies will outperform all other asset classes this year, and said, “This may translate into another decline in the correlation between Bitcoin and altcoins, just like the market earlier this year. Same as the peak.”
Bitcoin still leads the crypto market
It is undeniable that whenever the value of Bitcoin rises sharply, the entire market will follow. This is because when investors are optimistic about BTC, this sentiment usually permeates other altcoins.
In other words, it has been proven time and time again that the operation of the crypto market is beyond anyone’s wildest imagination, and factors such as FUD and short-term fluctuations play an important role in determining the currency momentum of the industry.
Winston, the pseudonymous host of Harvest Finance, an automatic yield agriculture protocol, prefers to look at things from a different perspective, claiming that since Bitcoin’s dominance bottomed out on May 18, most major altcoins have been bleeding steadily. He says:
“Most people will go hand in hand; nonetheless, there will always be some outliers. As this uncertainty ends, many people are seeking shelter in stablecoins and stablecoin farms to withstand current volatility.”
In this regard, Blake Ho, chief operating officer of DeFi platform Furucombo, believes that in this period of volatility, it is best for investors to take a step back and consider focusing on assets other than Bitcoin, Ethereum, etc., in order to diversify their investment portfolios. He believes: “Allocating some funds to stablecoins to obtain loan income, or allocating some funds for long-term investment in promising projects, can help reduce a person’s overall risk.”
As early as the first quarter of 2020, some famous altcoins Show off The BTC correlation value exceeds 0.91, basically indicating that whenever Bitcoin rises or falls, these digital tokens also rise. In general, this trend continued for a whole year, but at the beginning of 2021, the situation began to change.
For example, in January and February of this year, this related quotient fell, only breaking through the 0.8 mark again, causing the value of some altcoins to rise sharply. Interestingly, compared to BTC, ETH (and many other top altcoins) tend to provide higher returns during a bull market. This was especially evident in the bull market earlier this year, when Ethereum rose close to 600%, while Bitcoin’s return rate was about 150%.
That being said, it will be interesting to see how things develop from now on, especially if Bitcoin succeeds in continuing the bull market. Although the altcoin market will definitely get a boost if BTC soars, a related issue that deserves attention is whether some of the larger altcoins will delink – just like ETH did when it expanded to a new all-time high of $4,200 That way-start with Bitcoin and build your own financial identity in the coming months.