Key conclusions:
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A sharp fall in Bitcoin often triggers a systemic contagion, sending altcoins down the channels of liquidity and confidence.
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During crises, the market tends to view crypto as a single risky asset rather than valuing individual utility, as seen in the high BTC-ETH and BTC-XRP correlations.
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Correlation and beta analyzes are key to quantifying how dependent Ether and XRP are on Bitcoin’s performance.
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Tracking correlation indicators, using derivatives, and holding stable or yielding assets can help protect against Bitcoin-related shocks.
The dominance of Bitcoin (BTC) in the cryptocurrency market has long been a major feature of the crypto cycle. But what happens if Bitcoin’s dominance fades or its price drops by 50%? In this scenario, the two largest coins, Ether (ETH) and XRP (XRP), become critical test cases for reshaping the market.
This article explains how to evaluate ETH and XRP during a Bitcoin shock, measure dependence, assess risk, and design effective hedging strategies.
Why Bitcoin Dominance Matters
In traditional equity markets, when the biggest player in a sector stumbles, the ripple effects are immediate. Smaller companies often lose value because they depend on an ecosystem of leaders, investor confidence, supply chain connections and reputation. The same logic applies to crypto: Bitcoin serves as an “anchor asset”. When Bitcoin weakens, the entire market loses its sense of stability and direction.
Historically, Bitcoin has held a large share of the crypto market capitalization, known as the “dominance” metric. Most altcoins, including Ether and XRP, have shown a strong correlation with Bitcoin price movements.
For example, following the announcement of tariffs on October 10, 2025, the crypto market experienced a widespread liquidation, with Bitcoin plummeting. According to CoinMetrics, the BTC-ETH correlation increased from 0.69 to 0.73, while the BTC-XRP correlation increased from 0.75 to 0.77 over the next eight days.
This sharp convergence confirms that during a liquidity crunch fueled by macroeconomic fear, altcoins do not separate based on their individual utility. Metrics like Ether’s transaction volume or XRP’s institutional adoption offer little protection in such scenarios.
Instead, a high positive correlation serves as an empirical measure of common systemic risk. This shows that the market views the entire crypto sector as one asset class. This amplifies the downstream effects of the BTC-led collapse on ETH and XRP.
The implication is clear: if Bitcoin’s dominance falls or its price collapses, ETH and XRP are unlikely to move independently. They would probably suffer through two channels:
Liquidity/structural channel
The market structure, including derivatives, exchange flows and investor behavior related to BTC, is weakening. A major decline in Bitcoin could trigger large-scale liquidations driven by margin calls and cascading sell-offs. This often leads to massive capital outflows that affect all crypto assets, regardless of their fundamentals. They fall simply because they share the same basket of risks.
A channel of feelings
The collapse of the original decentralized asset undermines the core thesis of the entire crypto industry. This undermines investor confidence in the long-term viability of cryptocurrencies. As fear takes hold, investors move to safer assets such as fiat or gold. The result is an extended bear market that is dampening investment appetite for both Ether and XRP.
How to measure Bitcoin addiction and risk
Step 1: Define the shock scenario
The analysis begins by selecting a likely high-impact bitcoin event. This could include defining a specific price shock, such as a 50% drop in BTC within 30 days, or a structural shift, for example, a drop in Bitcoin dominance from 60% to 40%.
Step 2: Quantify the dependency
The next step is to calculate the current Pearson correlation coefficient between ETH, XRP and BTC. This statistical measure captures the linear relationship between daily asset returns, providing a basis for dependence. A value closer to +1 indicates that the altcoin is strongly correlated with the performance of BTC.
Step 3: Evaluate the current price response
Using the correlation data, apply regression analysis to calculate the beta (β) of each altcoin relative to BTC. The beta coefficient estimates the expected price movement of an altcoin for every one-unit change in Bitcoin. This is similar to calculating a stock’s beta relative to a benchmark such as the S&P 500 in traditional finance.
For example, if ETH’s β to BTC is 1.1, and the defined scenario assumes a 50% drop in BTC, the implied move of ETH would be -55% (1.1 × -50%).
Step 4: Adjust for liquidity risk and structural risk
Adjustment requires going beyond a simple beta calculation by taking into account the key risks of the market structure. Thin swap order books should be analyzed to account for liquidity risk, while high derivative open interest must be assessed for structural risk and potential cascading liquidations.
For example, if the -55% implied move from step 3 is coupled with shallow liquidity, the actual realized loss could increase by an additional 10%, resulting in a total draw of -65%. Additionally, review open interest and margin positions, as high leverage can accelerate declines through cascading liquidations.
What happens to Ether and XRP in a Bitcoin shock scenario?
In traditional finance, a sudden selloff in the S&P 500 or the sudden collapse of a major brokerage often triggers a rapid, indiscriminate flight to safety — an effect known as “financial contagion.” The cryptocurrency market exhibits similar dynamics, but in a faster and often amplified form, usually driven by a shock aimed at Bitcoin.
Data from previous crises, including the collapse of FTX and Terra, reveals a clear pattern: when Bitcoin falls, altcoins tend to be pulled down with it. Bitcoin continues to serve as the primary risk indicator in the market.
In such a scenario, liquidity often flocks to stable coins or leaves the market altogether in search of protection against volatile assets. Although Ether benefits from robust Layer 1 utility, it is not immune; during market stress, its correlation with Bitcoin often increases, as institutional capital treats both as risky assets. However, Ether’s block stake and broad decentralized app ecosystem can provide a utility-driven underpinning, potentially helping it recover more quickly once the crisis subsides.
On the other hand, assets like XRP, which face greater regulatory and structural risks and lack Ether’s extensive, organic on-chain return mechanisms, could be disproportionately affected. Such shocks often set off a vicious cycle where the collective loss of confidence outpaces the underlying utility of the token, triggering a correlated market-wide decline.
did you know Although Bitcoin is not typically correlated with the S&P 500, during periods of extreme financial stress — such as the COVID-19 pandemic — its correlation with the equity index tends to tighten significantly.
How to protect your strategy if BTC loses dominance or falls in price
Protecting a crypto portfolio from a sharp fall in Bitcoin requires more than basic diversification. Systemic shocks have shown that extreme correlations often erase the benefits of risk spreading.
Explore derivatives
During periods of extreme panic, the futures market can trade at a large discount to the current price. This creates opportunities for sophisticated traders to pursue relatively low-risk, undirected arbitrage. In doing so, they take advantage of market inefficiencies as a hedge against volatility, rather than taking on directional price exposure.
Diversify your portfolio with risk hedges
Hold positions in tokenized gold, real world assets (RWAs) or fiat-backed stablecoins to preserve portfolio value. These assets act as a liquidity reserve when crypto markets fall.
Monitor dominance and correlation ratios
Monitoring the ongoing short-term correlation of ETH and XRP to BTC can serve as a real-time warning signal that diversification benefits are fading. Confirms when immediate protective action may be required.
Rebalancing to positions that bring yield
Shift some of your holdings into roles, loans or liquidity funds that generate returns regardless of market direction. A stable yield can help offset valuation losses and improve recovery potential.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making a decision.
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