In the first week of January 2021, the price of Bitcoin increased by 414% year-on-year, breaking through $38,000. Part of the reason for the spike is the increase in interest from institutional investors and the majority of retail investors. Not surprisingly, the skyrocketing Bitcoin price has also affected the token prices of other mainstream cryptocurrencies.
Source: Coingecko
This review examines the interdependence between the prices of Bitcoin and certain altcoins over the past 30 days. In addition, we also analyzed the impact on the largest blockchain ecosystem-DeFi. Analyze from the total value locked (TVL) and DAppRadar's unique adjusted total value locked (aTVL) indicators.
Main gains
The price of Bitcoin exceeded $38,000. One of the main catalysts for the rise of Bitcoin is institutional adoption and wider retail channels.
In the past 30 days, the correlation between Ethereum (ETH), Cardano (ADA), Polkadot (DOT), Binance (BNB), Near (NEAR) and VeChain (VET) and Bitcoin prices has reached 80% to 95%.
The top Ethereum DeFi DApp tokens MKR, Sushi, Uni, AAVE and SNX have shown a 60% to 80% correlation with Bitcoin prices in the past 30 days.
The recent price rebound depicts a distorted view of the DeFi ecosystem, while DAppRadar's aTVL indicator shows a more realistic picture of ecosystem growth.
research method
Collected data on the top 100 cryptocurrencies by market capitalization from Coinecko, excluding stablecoins. These cryptocurrencies are then classified as blockchain cryptocurrencies and Ethereum DeFi DApp cryptocurrencies.
Then calculated the correlation between Bitcoin and these altcoin prices in the past 30 days.
Bitcoin price breaks through $37,000
Recently, Bitcoin has experienced massive growth. In 2020, the price of Bitcoin took off from US$7,195. As of now, the price of Bitcoin has reached a peak of US$40,000 and continues to rise.
Due to increased institutional interest resulting in tight supply, Bitcoin has risen by about 90% in the past 30 days. Investments from large institutions such as MicroStrategy and large companies such as Grayscale have led to increased investor interest.
According to a report by Pantera Capital in December 2020, the recent surge in bitcoin prices was mainly driven by leading financial technology giants PayPal and Square. PayPal and Square's CashApp bought almost 100% of all the new supply of Bitcoin that enters the market every day.
Pantera Capital reached this conclusion by analyzing iBit cryptocurrency trading volume. "IBit" is operated by PayPal's cryptocurrency brokerage service Paxos.
In addition, the widespread presence and increased visibility of platforms such as Coinbase and Crypto.com have made it easy for retail investors to participate. In general, in the past 30 days, general interest around Bitcoin has surged, as can be seen from the Google trend analysis below.
Source: Google Trends
Ethereum and other altcoins benefited from the rise of Bitcoin.
It can be said that traders and institutional players have strong financial resources, gradually making bitcoin transactions crowded, and retail investors are paying attention to ETH.
Source: Coingecko
The correlation between blockchain cryptocurrency and Bitcoin price
The first group to analyze is the mainstream cryptocurrency. The most notable cryptocurrencies show a close correlation with Bitcoin. They are Ethereum (ETH), Cardano (ADA), Polkadot (DOT), Binance (BNB), Near (NEAR) and VeChain (VET). Between 80% and 95%.
Interestingly, the most promising blockchain tokens such as Ethereum, Cardano, Polkadot, Binance, and NEAR have the highest correlation with Bitcoin.
Source: Coingecko
Correlation between Ethereum DApp token price and Bitcoin price
The second category to study is the head Ethereum DApp cryptocurrency. The token prices of DApps built on the Ethereum protocol have no correlation, which excludes MKR, Sushi, UNI, AAVE and SNX tokens, because their correlation is between 60% and 80%, indicating that the correlation is very strong.
It seems that the best-performing DeFi DApp token quickly gained investors’ approval.
Source: Coingecko
The skyrocketing price of tokens outlines the distortion of the DeFi ecosystem.
These price surges have had a significant impact on TVL, the most valuable indicator in the DeFi ecosystem. According to data on the DAppRadar DeFi page, TVL has soared to more than $22 billion in the past few days. Such predictions may imply a distorted view, because the main driving force is the surge in token prices.
aTVL aims to eliminate price effects by locking the price of tokens for 30 days. In addition, when accompanied by unique active wallet data is undoubtedly a better indicator of the growth of the DeFi ecosystem.
In the case of the skyrocketing price of Ethereum and other altcoins, aTVL can show the true growth of new assets in smart contracts.
Source: DAppRadar
to sum up
At the time of writing, the price of Bitcoin has increased by 414% year-on-year and continues to climb. The biggest trigger is institutional adoption and wider access through Paypal.
The high correlation between the top cryptocurrency and the price of Bitcoin shows that the most promising blockchain token is the next choice after Bitcoin. Similarly, in terms of the head Ethereum DApp tokens, Ethereum DeFi tokens are the next choice.
The increase has seriously affected the TVL indicator that is widely used to measure the growth of the DeFi ecosystem. And aTVL shows the real DeFi ecosystem trend.