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Alts Win Big When Bulls Stampede


We know that altcoins (alts) are keenly sensitive to bitcoin’s own price movements. In this study, we dig a little deeper to gain some more useful data on how Litecoin reacts to bitcoin price swings.

This article is for information only. Bitcoin Bulletin will never give you trading or investment advice.

In a ranging market, alts tend to have a negative correlation to bitcoin. That is, as bitcoin rises they tend to lose value in BTC terms, holding more-or-less level in USD terms. That’s because traders are selling alts to enjoy the rise in BTC, but not overselling them (which would be counterproductive).

In a bear market, alts tend to lose ground in BTC as BTC itself falls in USD terms – a kind of leveraging effect that can lead to brutal losses across the alts. While bitcoin dropped 85% in the last bear market, many alts saw 90-95% losses. In a bull market the trend is reversed. Money may spill over from BTC into the alts if there is sufficient confidence. This gives the opposite leveraging effect, and alts can post gains that dwarf even bitcoin.

The Case of Litecoin

Below, we post a chart of the last bull and bear markets, over the last 2 years, with Litecoin as a case study. We’re interested in what happens to LTC in BTC terms as bitcoin goes through its market cycle. The ultimate aim, of course, is to pinpoint the moments where it’s more advantageous to buy BTC and where it’s better to buy LTC. We’re using BTC and LTC data from Bitstamp and Bittrex, courtesy of Investing.com, with the x-axis showing days since 7 May 2017. Bitcoin is shown on a log scale.

Looking at the December 2018 bottom, Litecoin fell to $22 while bitcoin dropped to $3,100. When the market picked up, LTC almost quadrupled in price, while bitcoin almost doubled.

From the chart, we can immediately draw the following conclusions:

  • There is a strong but not consistent correlation between LTC and BTC.
  • LTC tends to trade in a range between 0.01 and 0.02 BTC; it has not spent much time outside of this range in the last 2 years.
  • In the run-up to the 2017 bubble, BTC fell in value as BTC moved higher, but rose when BTC paused or pulled back.
  • In the blow-off top to the bubble, BTC posted sudden and large gains.
  • Post-bubble, LTC also fell against BTC, occasionally correcting upwards as BTC corrected upwards (hitting a new high in BTC terms at one point).
  • LTC bottomed in BTC terms at the same point that BTC bottomed against USD.
  • The recent rise in LTC coincides with the rise in BTC from $3,100 to $5k, but the correction coincided with bitcoin’s next leg higher – just like in the run-up in 2017.
  • At this point, a slow rise in bitcoin would probably also see a fall for LTC against BTC – while a major bull market might see funds flow back into LTC too. However, it’s not clear how traders would react to a fall in BTC. If they are convinced that bitcoin is in a bull market, LTC might correct up as BTC pulls back. But if they think there is a chance that the bear market is still in force, LTC would likely fall against BTC too.

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