I’ve noticed a trend when observing the cryptocurrency market. Whenever Bitcoin’s value drops, it seems like most altcoins drop in value as well. Do you know why? Often, the decrease is so simultaneous it makes me wonder whether there is a specific correlation between Bitcoin and altcoins that dictates this trend. How is the market so synchronized to the point that the majority of altcoins lose value almost at the same time Bitcoin does?
Is there an underlying economic principle that could explain this phenomenon? Is the cryptocurrency ecosystem so interconnected that a swing in Bitcoin’s price impacts the entirety of the market? This synchronicity can be troublesome for investors who’d like to hedge against Bitcoin’s volatility by diversifying their portfolio with other coins. I’d love to know your thoughts or if anyone has studied this in-depth.