Key takeaways:
A significant drop in Bitcoin often results in systemic contagion, pulling altcoins down through liquidity and confidence channels.
During market crises, cryptocurrencies are typically regarded as a single risk asset, rather than being evaluated for their individual utility, as evidenced by the high correlations between BTC-ETH and BTC-XRP.
Correlation and beta analyses are vital for assessing the extent to which Ether and XRP are influenced by Bitcoin’s performance.
Keeping an eye on correlation indicators, utilizing derivatives, and maintaining stable or yield-bearing assets can help mitigate risks linked to Bitcoin shocks.
Bitcoin’s (BTC) dominance in the cryptocurrency market has been a cornerstone of crypto cycles. But what occurs if Bitcoin’s dominance diminishes or its price drops by 50%? In such a scenario, two of the top coins, Ether (ETH) and XRP (XRP), offer crucial insights into how the market readjusts.
This article discusses how to assess ETH and XRP during a Bitcoin shock, evaluating dependence, understanding risk, and creating effective hedging strategies.
Why Bitcoin dominance matters
In traditional equity markets, a misstep from the sector’s biggest player results in immediate ripple effects. Smaller firms frequently see value decline due to their reliance on the leader’s ecosystem, investor confidence, supply-chain connections, and reputation. The same principle applies to crypto: Bitcoin acts as the “anchor asset.” A decline in Bitcoin undermines the entire market’s stability and direction.
Historically, Bitcoin has maintained a significant share of the crypto market capitalization, referred to as the “dominance” metric. Most altcoins, including Ether and XRP, have shown a strong correlation with Bitcoin’s price fluctuations.
For instance, after the Oct. 10, 2025, tariff announcement, the crypto market witnessed a broad liquidation event, with Bitcoin experiencing a sharp decline. According to CoinMetrics, the BTC-ETH correlation jumped from 0.69 to 0.73, while the BTC-XRP correlation increased from 0.75 to 0.77 over the subsequent eight days.
This abrupt convergence indicates that during a liquidity crisis driven by macroeconomic fears, altcoins do not decouple based on their unique utility. Metrics such as Ether’s transaction volume or XRP’s institutional adoption provide little protection in these situations.
Instead, the high positive correlation serves as a measurable indicator of shared systemic risk, illustrating that the market perceives the entire crypto sector as a single asset class. This amplifies the downstream effects of a BTC-led downturn on both ETH and XRP.
The implication is evident: If Bitcoin’s dominance wanes or its price collapses, ETH and XRP are unlikely to move independently. They are likely to be impacted through two channels:
Liquidity/structural channel
The market structure encompassing derivatives, exchange flows, and investor behavior associated with BTC deteriorates. A significant Bitcoin crash may prompt large-scale liquidations from margin calls and cascading sell-offs, leading to substantial capital outflows affecting all crypto assets, regardless of their fundamentals. They decline simply due to their shared risk profile.
Sentiment channel
A decline in the original decentralized asset undermines the fundamental premise of the entire crypto industry. This diminishes investor confidence in the long-term viability of cryptocurrencies. As fear sets in, investors typically gravitate toward safer assets such as fiat or gold, resulting in a prolonged bear market that reduces investment interest in both Ether and XRP.
How to measure Bitcoin dependence and risk
Step 1: Define the shock scenario
The analysis initiates by defining a plausible, high-impact event for Bitcoin. This may involve outlining a specific price shock, like a 50% fall in BTC within 30 days, or a structural change, such as Bitcoin’s dominance dropping from 60% to 40%.
Step 2: Quantify dependence
The next phase is to compute the current Pearson correlation coefficient between ETH, XRP, and BTC. This statistical metric captures the linear relationship among the assets’ daily returns, providing a baseline for dependence. A value nearing +1 indicates a strong connection between the altcoin and BTC’s performance.
Step 3: Estimate immediate price response
Utilizing correlation data, apply regression analysis to determine each altcoin’s beta (β) in relation to BTC. The beta coefficient estimates the expected price movement of the altcoin for each one-unit change in Bitcoin, akin to calculating a stock’s beta against a benchmark index like the S&P 500 in traditional finance.
For instance, if ETH’s β to BTC is 1.1 and the defined scenario entails a 50% BTC drop, the expected ETH movement would be -55% (1.1 × -50%).
Step 4: Adjust for liquidity and structural risk
Adjustment goes beyond mere beta calculation by incorporating critical market structure risks. Analyze thin exchange order books to account for liquidity risk, while evaluating high derivatives open interest for structural risk and potential cascading liquidations.
For example, if the implied -55% drop from Step 3 is exacerbated by shallow liquidity, the actual realized loss may increase by an additional 10%, culminating in a total -65% decline. Additionally, assess open interest and margin positions, as high leverage can expedite the fall through cascading liquidations.
What happens to Ether and XRP in a Bitcoin shock scenario?
In traditional finance, a sudden sell-off in the S&P 500 or the abrupt collapse of a major broker often sparks a swift, indiscriminate flight to safety — a phenomenon termed “financial contagion.” The cryptocurrency market exhibits similar dynamics but in a faster and often more pronounced manner, usually ignited by a Bitcoin-centered shock.
Data from previous crises, including the FTX and Terra collapses, reveal a consistent pattern: When Bitcoin declines, altcoins typically follow suit. Bitcoin remains the primary risk barometer for the market.
In such scenarios, liquidity often shifts towards stablecoins or exits the market entirely, in search of protection from volatile assets. Though Ether benefits from strong layer-1 utility, it is not immune; during market stress, its correlation with Bitcoin frequently rises, as institutional capital perceives both as risk assets. However, Ether’s staking lock-up and expansive decentralized application ecosystem may provide a utility-driven baseline, potentially enabling it to recover more swiftly once the crisis subsides.
In contrast, assets like XRP, facing greater regulatory and structural risks, and lacking the extensive, organic on-chain yield mechanisms of Ether, may suffer disproportionately. Such shocks often create a vicious cycle where a collective loss of confidence overshadows fundamental token utility, propelling a correlated decline throughout the market.
Did you know? While Bitcoin is generally uncorrelated with the S&P 500, during times of extreme financial stress — like the COVID-19 pandemic — its correlation with the equity index tends to tighten considerably.
How to hedge your strategy if BTC loses dominance or its price falls
Hedging a cryptocurrency portfolio against a drastic drop in Bitcoin requires more than simple diversification. Systemic shocks have demonstrated that extreme correlations often negate the advantages of spreading risk.
Explore derivatives
During times of extreme panic, the futures market may trade at a significant discount to the spot price. This creates opportunities for skilled traders to pursue relatively low-risk, non-directional arbitrage. By doing so, they capitalize on market inefficiencies as a hedge against volatility, rather than taking directional price risks.
Diversify your portfolio with risk buffers
Maintain positions in tokenized gold, real-world assets (RWAs), or fiat-backed stablecoins to safeguard portfolio value. These assets function as liquidity reserves in downward spirals in crypto markets.
Monitor dominance and correlation ratios
Regularly tracking the short-term correlation of ETH and XRP to BTC can serve as an immediate warning that diversification benefits are diminishing. This identifies when urgent hedging measures may be necessary.
Rebalance to yield-bearing positions
Reallocate part of your holdings into staking, lending, or liquidity pools that generate yield regardless of market direction. The steady yield can help off-set valuation losses and enhance recovery potential.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
