Analyzing Interdependencies between Bitcoin and altcoin prices over the last 30 days
Bitcoin price has grown by 414% year-on-year surpassing $38,000 within the first week of January 2021. The surge was triggered in part by increased interest from institutional investors and the wider retail audience. By no surprise, the Bitcoin price surge had an effect on other top cryptocurrencies’ token prices.
This overview examines the interdependencies between Bitcoin and certain altcoin prices over the last 30 days. Furthermore, we analyze the effect on the largest blockchain ecosystem – DeFi. Analyzed in terms of total value locked (TVL) and DappRadar’s unique adjusted total value locked (aTVL) metric.
- Bitcoin price surpassed $38,000. One of the main catalysts for the rise of Bitcoin has been institutional adoption and wider retail accessibility.
- Ethereum (ETH), Cardano (ADA), Polkadot (DOT), Binance (BNB), Near (NEAR), and VeChain (VET) showed an 80% to 95% correlation to Bitcoin price in the last 30 days.
- Top Ethereum DeFi dapp tokens MKR, Sushi, Uni, AAVE, and SNX exhibited a 60% to 80% correlation to Bitcoin price in the last 30 days.
- The recent price rally paints a distorted view of the DeFi ecosystem, whilst DappRadar’s aTVL metric shows a more realistic picture of the ecosystem’s growth.
Data from the top 100 cryptocurrencies by market capitalization was collected from Coingecko excluding stablecoins. The cryptocurrencies were then grouped respectively into blockchain cryptocurrency and Ethereum DeFi dapp cryptocurrencies.
The correlation between Bitcoin and these altcoin prices was then calculated over the last 30 days.
Bitcoin price surpasses $37,000
Bitcoin has been experiencing massive growth recently. The price of Bitcoin in 2020 took off from $7,195 and as of today, has peaked to $40,000 and is continuing to climb.
Bitcoin has increased around 90% over the last 30-days due to growing institutional interest resulting in a supply squeeze. Investment from large institutions like MicroStrategy and major companies like Grayscale has led to increased interest from investors.
According to a report by Pantera Capital in December 2020 the recent surge in Bitcoin prices has been largely driven by leading fintech giants PayPal and Square. PayPal and Square’s CashApp have bought up almost 100% of all the new supply of Bitcoins entering the market each day.
Pantera Capital came to this conclusion by analyzing iBit cryptocurrency exchange volume. iBit is run by PayPal’s cryptocurrency brokerage service Paxos.
Furthermore, the wide availability and increased awareness of platforms such as Coinbase and Crypto.com are allowing retail investors to easily get involved. Overall, there has been a surge in general interest around Bitcoin in the last 30-days as seen in the google trends analysis below.
Ethereum and other altcoins have benefited from Bitcoin’s rally
It could be argued that retail investors are looking at ETH as Bitcoin trading becomes crowded with traders and institutional players with deeper pockets.
Correlation between blockchain cryptocurrencies and Bitcoin price
The first group to analyze is blockchain cryptocurrencies. The most notable cryptocurrencies showing a tight correlation with Bitcoin were Ethereum (ETH), Cardano (ADA), Polkadot (DOT), Binance (BNB), Near (NEAR), and VeChain (VET) with a correlation between 80% to 95%.
Interestingly, the most prospective blockchain tokens, such as Ethereum, Cardano, Polkadot, Binance, and NEAR had the highest level of correlation to Bitcoin.
Correlation between Ethereum dapp token prices and Bitcoin price
The second category to look into is top Ethereum dapp cryptocurrencies. The token prices of dapps built on the Ethereum protocol did not correlate excluding MKR, Sushi, UNI, AAVE, and SNX tokens. Their correlation ranges between 60%-80% which states the correlation to be very strong.
Seemingly, the top-performing DeFi dapp tokens were pounced upon by investors quickly.
Token price surges paint a distorted view of the DeFi ecosystem
These price surges had a notable effect on the DeFi ecosystem’s most valued metric – TVL. According to the DappRadar DeFi page, TVL has spiked to more than $22 billion in the last couple of days. Such projections might suggest a distorted view as the main driver was the surge in token prices.
aTVL aims to eliminate the price effect by locking token prices at 30-day periods. Furthermore, when accompanied by unique active wallet data is undoubtedly a better metric to measure DeFi ecosystem growth.
In the event of a surge in the price of ETH and other altcoins, aTVL shows the true growth of assets added to the smart contracts.
The high-level correlation between top cryptocurrencies and Bitcoin price showed that the most prospective blockchains’ tokens are the next choice after Bitcoin. Similarly, in terms of top Ethereum dapp tokens, Ethereum DeFi tokens are the next choice.
The rally has seriously affected the TVL metric that is so widely used to measure the growth of the DeFi ecosystem. While aTVL shows the real DeFi ecosystem trends.