The idea that altcoins simply follow Bitcoin’s price movements—up or down—is widely accepted across the crypto community. Given that Bitcoin dominates the overall cryptocurrency market cap, it's natural for many digital assets to move in tandem when BTC shifts in value. However, recent data suggests a meaningful shift in this long-standing trend.
In 2018, an overwhelming 75% of the top 200 cryptocurrencies exhibited a correlation of 0.91 or higher with Bitcoin. This near-perfect synchronization meant that diversifying a crypto portfolio offered limited risk reduction—since most assets moved in lockstep, true portfolio independence was nearly impossible.
But 2019 tells a different story.
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The High Correlation Environment of 2018
2018 stands out as the year of peak correlation between Bitcoin and other major cryptocurrencies. This coincided with a prolonged bear market that saw broad sell-offs across digital assets. During such periods of market stress, investors often liquidate holdings indiscriminately, leading to highly synchronized price drops.
This “flight to safety” behavior—though counterintuitive in decentralized markets—effectively increased correlation across the board. As fear spread, altcoins failed to decouple from Bitcoin’s downward trajectory, reinforcing the perception that the entire crypto market moved as one.
Interestingly, the same level of correlation was not observed during the 2017 bull run, despite widespread price increases. This asymmetry suggests that market downturns drive stronger correlations than rallies, likely due to panic-driven selling rather than strategic buying.
A Shift in 2019: Lower Correlations in a Sideways Market
The first half of 2019 introduced a new market regime: a sideways or range-bound trend. Outside of a brief surge in early April, prices largely stabilized, allowing individual project fundamentals and market-specific factors to influence asset performance independently.
This environment fostered lower correlation between Bitcoin and altcoins. Visually, the divergence is noticeable—but to confirm the trend statistically, deeper analysis is required.
Statistical Validation: Welch’s One-Tailed T-Test
To determine whether the drop in correlation was significant, a Welch’s t-test was applied. This statistical method is ideal for comparing two sample groups with unequal variances—perfect for financial time-series data.
- Null Hypothesis: The average correlation between Bitcoin and altcoins in 2019 is greater than or equal to that in 2018.
- Alternative Hypothesis: The average correlation in 2019 is lower than in 2018.
The test yielded a t-statistic of -4.99 and a p-value well below 0.01, indicating strong statistical significance. As a result, the null hypothesis is rejected. There is compelling evidence that mean correlation coefficients between Bitcoin and altcoins meaningfully declined in 2019.
This isn't just a minor fluctuation—it signals a structural shift in market behavior.
Why Lower Correlation Matters: The Power of Diversification
Lower correlation is good news for investors focused on risk management and portfolio optimization.
As Harry Markowitz, Nobel laureate and father of Modern Portfolio Theory, famously said:
“Diversification is the only free lunch in finance.”
When assets have low or negative correlations, they respond differently to market events. One may rise while another falls, smoothing out overall portfolio volatility. In contrast, when everything moves together—as was common in 2018—diversification offers little benefit.
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For example:
- A portfolio containing both BTC and an uncorrelated privacy coin may see reduced drawdowns during BTC sell-offs.
- Stablecoins or DeFi tokens with unique utility can behave independently based on protocol demand rather than macro-crypto sentiment.
Thus, the declining correlation landscape opens real opportunities for strategic allocation and risk-adjusted returns.
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Important Caveats: Correlation Is Not Static
While current data shows lower correlations, investors should remain cautious.
Correlation Changes Over Time
Historical correlation does not guarantee future behavior. The relationship between two assets can shift due to:
- Regulatory developments
- Technological upgrades
- Macroeconomic events
- Shifts in investor sentiment
A 30-day rolling correlation chart often reveals wild swings—highlighting how dynamic these relationships truly are.
Limitations of Pearson’s Correlation Coefficient
The analysis relies on Pearson’s method, which assumes a linear relationship between price movements. However, crypto markets often exhibit non-linear behaviors—such as exponential rallies or delayed reaction patterns—that Pearson’s model may oversimplify.
Therefore, while useful, correlation coefficients should be one tool among many in an investor’s toolkit—not the sole decision-making factor.
Data Sources and Methodology
All price and market capitalization data were sourced from CoinMarketCap. For each year (2018 and 2019), the top 200 cryptocurrencies by market cap were identified at the start of the year. Daily price data was then used to compute Pearson correlation coefficients against Bitcoin over the full 12-month period.
This approach ensures consistency and transparency in measuring how closely altcoins tracked Bitcoin’s movements annually.
Frequently Asked Questions (FAQ)
Q: What does a correlation coefficient of 0.91 mean?
A: A value close to 1 indicates a very strong positive relationship—meaning when Bitcoin’s price rises or falls, the altcoin tends to move in the same direction almost identically.
Q: Why is lower correlation beneficial for investors?
A: Lower correlation allows for more effective diversification. When assets don’t move together, losses in one area can be offset by stability or gains elsewhere, reducing overall portfolio risk.
Q: Can I rely on past correlations to predict future performance?
A: No. Correlations are time-sensitive and can change rapidly based on market conditions. They should inform—but not dictate—investment decisions.
Q: How can I take advantage of low-correlation assets?
A: Consider building portfolios that include assets from different sectors—such as privacy coins, DeFi tokens, and layer-2 solutions—which may respond differently to market stimuli.
Q: Was the entire crypto market less correlated in 2019?
A: While the average dropped significantly, some altcoins still maintained high correlation with Bitcoin. However, the overall trend showed increasing independence across the top 200 coins.
Q: Does this mean Bitcoin is losing influence?
A: Not necessarily. Bitcoin remains the market leader and sentiment driver. However, maturing ecosystems and growing use cases allow other projects to develop more autonomous price actions.
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Conclusion
The declining correlation between Bitcoin and altcoins in 2019 marks a pivotal moment in crypto market evolution. It reflects growing maturity, increased project differentiation, and more sophisticated investor behavior.
For those building long-term crypto portfolios, this shift unlocks real diversification potential—turning theory into practice. By leveraging low-correlation assets and understanding dynamic market relationships, investors can construct more resilient and adaptive strategies in an ever-changing digital asset landscape.