Bitcoin Correlation With Wider Crypto Market Nears ATH As Investors De-Risk


Bitcoin correlation with Ethereum and the wider crypto market is now approaching the all-time high value as investors have taken a risk-averse approach recently.

Ethereum And Other Altcoins Have Increasingly Started Following Bitcoin In 2022

As per the latest weekly report from Arcane Research, BTC’s correlation with ETH and altcoins is nearing the ATH set back in May 2020.

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The “correlation” of Bitcoin with the crypto market here refers to the degree of change in altcoin prices that happens due to volatility in the value of BTC.

The indicator also measures the direction of the change. When the value of the metric is above zero, it means there is a positive correlation between the BTC price and the crypto market right now.

During such periods, altcoins replicate any fluctuations in the price of BTC in the same direction. On the other hand, correlation values less than zero imply the wider crypto market is reacting to changes in the coin’s price by moving in the opposite direction.

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When the indicator is exactly equal to one, it means there isn’t any correlation with the prices of these assets at the moment.

Now, here is a chart that shows the 90-day correlation curves for Bitcoin with Ethereum and with the rest of the altcoins over the past five years:

Bitcoin Correlation With Ethereum And Altcoins

Looks like the market has become highly correlated in recent months | Source: Arcane Research's The Weekly Update - Week 10, 2022

As you can see in the above graph, Bitcoin and the crypto market was highly correlated back during the 2018 and 2019 bear periods.

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However, following July 2020, BTC’s strength meant that the correlation reduced and in Jan 2021 the metric bottomed out.

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Since then, the value of the metric has been going up, and in recent months, the various altcoins have started following the price of Bitcoin quite closely.

Right now, the BTC-ETH correlation value stands at 0.91, while that between the coin and all other altcoins is 0.90. These values aren’t too far off from the all-time high of around 0.95.

What this trend suggests is that investors have had an overall risk-averse sentiment in recent months. With such a highly correlated market, it means having a diverse crypto portfolio wouldn’t reduce much risk as prices are bound to follow Bitcoin in the end.

BTC Price

At the time of writing, Bitcoin’s price floats around $41k, up 5% in the past week. The below chart shows the trend in the price of the crypto over the last five days.

Bitcoin Price Chart

BTC's price seems to have observed uptrend over the past couple of days | Source: BTCUSD on TradingView
Featured image from Unsplash.com, charts from TradingView.com, Arcane Research


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