I have noticed today that Bitcoin (BTC) and Ethereum (ETH) charts look almost the same.
Why are they so correlated?
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10Because there isn't a remotely rational reason to justify the price of any ecoin, and the price of both coins is based on the exact same thing: hype.– google cloud suport sucksDec 25, 2017 at 15:05
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There is no way that they could be that lined up without computer buying and selling. The same charts will break free from each other sometimes which allows higher prices.– BenOct 23, 2021 at 1:20
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2 Answers
All the crypto currencies are currently riding mostly on FOMO, as there is no other value behind them (FOMO = Fear Of Missing Out). People see that they are rising, so they are afraid of missing the big thing, so more and more get into them (which makes them rise even more, etc.)
This mood is pretty much identical for nearly all of them, so they all move in sync.
There is a lot of discussion about the longterm usefulness and value of a crypto currency, but if interest disappears tomorrow, they are all only random bit strings on some harddisk, and as such not worth a penny. On the other hand, interest might stay or increase even more, so they might rise to much higher prices. It’s all in peoples minds.
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1I disagree. The dollar has value because you can purchase things with it and the government coerces you to pay taxes with USD. Fiat has no gold backing. More and more businesses are accepting BTC and other Cryptos as payment thus making them useful and giving them value. Apr 23, 2018 at 19:31
There are several reasons for this strong correlation:
- Many altcoins (Crytocurrencies other than bitcoin) are bought and sold predominantly, if not exclusively, with BTC rather than USD. Being priced in BTC, this means that when the price of BTC in USD rises and falls, the the price of the altcoin as valued in USD does the same.
- Even for those coins that have large USD (or other fiat) trading pairs, their performance is often benchmarked against BTC, and existence of the BTC trading provides a stabilizing effect.
- Much of the news (and hype) that influences BTC's stability (government regulation, exchange solvency, business announcements or investments, etc.) equally affects nearly all other coins. Given the difficulty of valuing these investments intrinsically, and the speculative nature of these investments, this has an outsized (if not dominant) influence on prices.
- While the technical (and other) differences between the various cryptocurrencies may play a defining role in long-term trends, they do little to influence short-term volatility. (One observes similar effects comparing public stocks from the same sector, baring some company-specific news.)
That being said, the prices are definitely not strictly coupled long term. See the golden line at https://coinmarketcap.com/currencies/ethereum/ which would remain flat with perfect correlation.
