In this lesson
- understand what correlation is and how to read it
- see how closely altcoins move with Bitcoin
- find out why "diversification" across cryptocurrencies protects less than it seems
You hold five different cryptocurrencies and feel diversified. Then a bad week comes and all five fall at once. It is not bad luck – it is correlation.
What correlation is#
Correlation measures how much two things move together, on a scale from −1 to +1:
- +1 – they always move in the same direction,
- 0 – they are unrelated,
- −1 – they always move in opposite directions.
It is calculated from daily price changes, not from the prices themselves. Two coins that both rise in the long run need not be highly correlated if they move differently day by day.
Cryptocurrencies move with Bitcoin#
From daily changes on Binance between January 2021 and September 2025:
| Pair | Correlation of daily changes |
|---|---|
| BTC – ETH | 0.80 |
| BTC – SOL | 0.60 |
| ETH – SOL | 0.64 |
And correlation is not constant. Between Bitcoin and Solana it was only 0.40 in 2021 – in the 2022 crash already 0.79. Correlations rise under stress: when the market panics, everything is sold at once.
On days when Bitcoin fell by more than 5% (there were eighty such days since 2021), it fell 7.3% on average. Ethereum fell 8.6% on the same days and Solana 8.3%.
When Bitcoin falls, altcoins fall harder#
The decline after the November 2021 peak:
- Bitcoin from 69,000 to 15,476 – down 78%,
- Ethereum from 4,868 to 882 – down 82%,
- Solana from 260 to 8 – down 97%.
- Bitcoin
- Ethereum
- Solana
Bitcoin dominance#
So-called Bitcoin dominance is Bitcoin's share of the market value of all cryptocurrencies. When it rises, money is pulling back into Bitcoin (often out of fear). When it falls, traders move money into altcoins (often in euphoria). It is a useful gauge of market mood – but not a trading signal: dominance can rise or fall for months.
What follows#
- Five altcoins are not five bets. With correlations around 0.6–0.9 it is more like one big bet on crypto.
- An altcoin is Bitcoin with leverage. It loses more in crashes – and does not always make it back in rallies.
- Watch Bitcoin even if you trade something else. Altcoins rarely hold up against a strong BTC move.
Correlation changes
The numbers above hold for one period and one exchange. Correlation changes and almost always rises under stress – exactly when you would need diversification most.
Common myths#
- "I have ten coins, I am diversified." If they are all crypto, not much.
- "This altcoin is independent of Bitcoin." Until the first proper crash.
- "A correlation of 0.8 means they move together on 80% of days." No – it measures the strength of the joint movement, not a number of days.
Summary
- Correlation (−1 to +1) measures how much two things move together; it is calculated from daily changes.
- Large cryptocurrencies correlate with Bitcoin at roughly 0.6–0.8, and it rises under stress.
- In crashes altcoins fall harder than Bitcoin – in 2021–2022 by 82 to 97% against 78%.
- Bitcoin dominance shows market mood; it is not a trading signal.