Bitcoin's dominance in the cryptocurrency market has always been a defining characteristic of cryptocurrency cycles. But what happens if Bitcoin's dominance weakens or its price plummets by 50%? In this scenario, the two largest cryptocurrencies by market capitalization—Ethereum (ETH) and Ripple (XRP)—will become key cases for examining how the market restructures. This article will explain how to assess Ethereum and XRP when Bitcoin is impacted, including measuring their dependence, assessing risks, and developing effective hedging strategies. Why Bitcoin's Dominance Matters So Much In traditional stock markets, when an industry giant suffers a setback, the chain reaction is immediate. Smaller companies often depreciate as a result because they rely on the ecosystem, investor confidence, supply chain connections, and reputation of the industry leader. The same principle applies to the cryptocurrency market: Bitcoin acts as an "anchor asset." When Bitcoin's price falls, the entire market loses stability and direction. Historically, Bitcoin has accounted for a large share of the cryptocurrency market capitalization, a phenomenon known as the "dominance" metric. Most altcoins, including Ethereum and XRP, exhibit strong correlations with Bitcoin's price movements. For example, following the tariff announcement on October 10, 2025, the cryptocurrency market experienced a massive liquidation event, with Bitcoin's price plummeting. According to CoinMetrics data, over the next eight days, the correlation between BTC and ETH rose from 0.69 to 0.73, while the correlation between BTC and XRP also increased from 0.75 to 0.77. This significant convergence suggests that altcoins do not decouple due to their individual utility during liquidity crises triggered by macroeconomic panics. Metrics such as Ethereum's trading volume or XRP's institutional adoption offer little protection in such situations. Instead, a high positive correlation can serve as an empirical indicator of the sharing of systemic risk. This indicates that the market views the entire cryptocurrency industry as a single asset class. This amplifies the subsequent impact of a Bitcoin price crash on Ethereum and XRP. This means that if Bitcoin's market share declines or its price crashes, Ethereum and XRP are unlikely to fluctuate independently. They are likely to be affected by two factors: Liquidity/Structural Channels Market structures related to Bitcoin, including derivatives, trading flows, and investor behavior, are weakening. A significant Bitcoin crash can trigger massive liquidations, with margin calls and chain sell-offs being the primary causes. This typically leads to a massive outflow of funds, impacting all crypto assets regardless of their fundamentals. The reason for their decline is simple: they share the same risk basket. The collapse of decentralized assets shakes the core principles of the entire cryptocurrency industry, eroding investor confidence in the long-term viability of cryptocurrencies. As panic spreads, investors often turn to safer assets like fiat currencies or gold. The result is a prolonged bear market, further reducing investor enthusiasm for Ethereum and XRP. How to Measure Dependence on Bitcoin and Risk Step 1: Define the Impact Scenario The analysis begins by selecting a potentially high-impact Bitcoin event. This might include defining a specific price shock, such as Bitcoin falling 50% in 30 days, or a structural shift, such as Bitcoin's market share dropping from 60% to 40%. Step 2: Quantifying Dependency The next step is to calculate the current Pearson correlation coefficient between Ethereum, XRP, and Bitcoin. This statistic reflects the linear relationship between the daily returns of these assets, providing a benchmark for measuring their dependence. The closer the correlation coefficient is to +1, the stronger the correlation between the altcoin's performance and Bitcoin's. Step 3: Estimate Immediate Price Response Using correlation data, regression analysis is applied to calculate the Beta coefficient of each altcoin relative to Bitcoin. The Beta coefficient estimates the expected price change of the altcoin for every unit change in Bitcoin. This is similar to calculating the Beta coefficient of stocks relative to benchmark indices such as the S&P 500 in traditional finance. For example, if Ethereum's Beta coefficient against Bitcoin is 1.1, and the defined scenario assumes Bitcoin drops by 50%, then the implied change in Ethereum would be -55% (1.1 × -50%). Step 4: Adjusting for Liquidity and Structural Risks The adjustment strategy needs to go beyond simple Beta coefficient calculations and incorporate key market structural risks. Order books from exchanges with lower trading volumes should be analyzed to assess liquidity risk. The structural risks and potential cascading liquidation risks of high-volume derivative open interest must also be assessed. For example, if the implied -55% drop in step 3 is exacerbated by insufficient liquidity, the actual loss could increase by another 10%, bringing the total drop to -65%. Furthermore, open interest and margin positions should be reviewed, as high leverage can accelerate a decline through cascading liquidations. What happens to Ethereum and XRP if Bitcoin suffers a major blow? In traditional finance, a crash in the S&P 500 or the sudden collapse of a large brokerage firm often triggers rapid and indiscriminate risk aversion—an effect known as "financial contagion." The cryptocurrency market exhibits similar dynamics, but at a faster pace and on a larger scale, typically triggered by shocks originating from Bitcoin. Data from past crises (including the FTX and Terra crashes) reveals a clear pattern: when Bitcoin falls, other cryptocurrencies typically follow suit. Bitcoin remains the primary risk indicator for the market. In such situations, liquidity often flows into stablecoins or exits the market entirely to hedge against the risks of volatile assets. While Ethereum benefits from its strong Layer-1 utility, it is not entirely immune; its correlation with Bitcoin typically strengthens during periods of market stress as institutional capital views both as risk assets. However, Ethereum's staking lock-up mechanism and extensive decentralized application ecosystem may provide a utility-driven support, helping it rebound more quickly after a crisis subsides. On the other hand, assets like XRP, facing higher regulatory and structural risks and lacking Ethereum's extensive and natural on-chain yield mechanisms, may suffer disproportionate shocks. Such shocks often trigger a vicious cycle where the loss of collective confidence outweighs the token's fundamental utility, leading to a correlated decline across the entire market. What if Bitcoin loses market dominance or its price falls? How to hedge your strategy? To hedge against a Bitcoin crash, basic diversification alone is insufficient. Systemic shocks demonstrate that extreme correlations often negate the benefits of diversification. Explore Derivatives During periods of extreme market panic, futures market prices can be significantly lower than spot prices. This provides experienced traders with opportunities for relatively low-risk, non-directional arbitrage. They leverage market inefficiencies to hedge volatility risk rather than taking on directional price risk. Diversify your portfolio with risk buffers Hold tokenized gold, real-world assets (RWA), or fiat-backed stablecoins to preserve and grow wealth. These assets serve as liquidity reserves when the cryptocurrency market crashes. Monitoring dominance and correlation ratios: Tracking the rolling short-term correlation between Ethereum and XRP and Bitcoin can serve as a real-time early warning signal that diversified investment returns are disappearing. It can identify when immediate hedging measures are needed. Rebalancing to yield-generating positions: Transferring some assets to staking, lending, or liquidity pools—assets that generate returns regardless of market movements. Stable returns help offset valuation losses and increase asset recovery potential.
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