Why Does All Crypto Move Together?

If you watch the crypto market closely, you may have noticed that seemingly unrelated cryptocurrencies often move together in price. In this blog, we’ll explain why this phenomenon occurs — and discuss whether cryptocurrencies will continue to be correlated with each other in the future! 

Are cryptocurrencies correlated with each other? 

Many cryptocurrencies are correlated with Bitcoin in both bull and bear markets. 

For example, it’s estimated that Bitcoin and Ethereum had a 82% correlation in a 40-day rolling window ending in 2023. This means that the price of the two cryptocurrencies have a strong relationship with each other — even though they are designed for very different purposes! 

Three reasons why cryptocurrencies move together

Let’s explore some of the reasons why cryptocurrencies tend to move together in price. 

General market sentiment 

Cryptocurrencies are heavily influenced by general market sentiment. Studies have shown that investors are more likely to turn towards crypto during uncertain times. This means that news headlines can impact the entire cryptocurrency market! 

Cryptocurrency in the early adoption phase 

Despite its rapid growth and adoption, the cryptocurrency ecosystem is still in its infancy. Many projects are in experimental stages, and investors are constantly on the lookout for cryptocurrencies that can provide exponential returns. 

That means that during a bull market, investors may buy into several unrelated cryptocurrency projects hoping to find the ‘next big thing’. 

Bitcoin: The common liquidity pair

Bitcoin is often used as a liquidity pair for other cryptocurrency on exchanges (ex. ETH/BTC, SOL/BTC). Because of this, a rise in the price of Bitcoin can change how other crypto-assets are valued. 

Are cryptocurrencies becoming less correlated with each other? 

It’s reasonable to assume that as the cryptocurrency market grows in maturity, correlation between different cryptocurrencies will fall. Different projects may offer unique use-cases, which will lead to different levels of demand for each cryptocurrency. 

Data analysis supports the idea that cryptocurrencies are growing less correlated with each other. A recent study by Coinbase found that correlation between Bitcoin and Ethereum appears to be falling over time. 

However, it’s likely that cryptocurrencies will maintain some level of correlation with each other — just as company stocks in the same industries tend to move together in price. 

In conclusion

Factors like economic uncertainty can impact the price of seemingly unrelated crypto-assets. However, it’s reasonable to assume that as time passes, cryptocurrencies will move together less and less.