Lately, cryptocurrencies with lower market capitalization than Bitcoin have been moving with high volatility giving investors and traders profit and losses across the board.
This has created a narrative that the crypto market has decoupled from Bitcoin, meaning that most cryptocurrencies do not follow Bitcoin’s movement anymore.
In this article, we will be looking into the current data to see whether the statement of that narrative is true or false.
Bitcoin and Altcoins Movement
To prove the decoupling of Bitcoin from the crypto market, the best way to do it is by looking at the movement of Bitcoin and Ethereum.
This is because most altcoins follow the movement of Ethereum, which is why if Ethereum is no longer synchronized with Bitcoin, then the statement of the decoupling narrative might be true.
The current narrative only came around again after the Bitcoin price surge that brought most cryptocurrencies prices up.
But after Bitcoin went stagnant and all the lower market capitalization went up, the narrative got even more popular.
Looking at the movement of Bitcoin and Ethereum, it can be seen that the decoupling has not happened as the movement of the two still looks very similar.
Decoupling narrative is a common misconception in the crypto market, as usually it got popular after a lot of newer generation of crypto enthusiasts asks the narrative around without looking at the capital flow theory in crypto.
The capital flow theory in crypto refers to the fact that capital moves from Bitcoin into other cryptocurrencies in a structured manner, usually creating divergence between the movement of Bitcoin and other cryptocurrencies.
The money usually goes from Bitcoin to Ethereum, and then from Ethereum to higher market capitalization of altcoins, which goes to medium market capitalization of altcoins, and then finishing in lower market capitalization of altcoins, also known as meme coins.
Understanding the Capital Flow of Crypto
This is why seeing the chart above can be useful as usually when Ethereum’s chart is above Bitcoin, it can be seen as a positive condition for the market. Whereas when Ethereum's chart is below Bitcoin, it can be a sign that the market is going down.
Also, another thing to note is that there is another way of looking at this capital flow, which is by using the Bitcoin dominance data.
Bitcoin dominance is data that shows how much money of the overall crypto market is currently in Bitcoin.
To use the Bitcoin dominance when analyzing the crypto market, you can use the cheat sheet above, provided by Coinmarketcap.
As you can see these are just correlations between Bitcoin and Altcoins where there might be a divergence here and there but all the markets are still connected.
So, to answer the question, is the crypto market decoupling from Bitcoin, we can look at the explanation above and conclude that the crypto market has not decoupled from Bitcoin.
For the market to decouple from Bitcoin, it would take a cryptocurrency to overthrow Bitcoin’s market capitalization and popularity, because as long as Bitcoin is more commonly known than other cryptocurrencies, then the market will never decouple from Bitcoin.
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