1. How do ETFs drive the prices of other cryptocurrencies?
The launch of a Bitcoin spot ETF will not only affect $BTC itself, but may also have a chain reaction on the entire cryptocurrency market. Through the capital spillover effect, Bitcoin, as the most representative cryptocurrency in the market, will become the preferred asset for institutional investors to enter the market.
Once Bitcoin prices rise, this positive market sentiment often spreads to other crypto assets, especially tokens on platforms such as Ethereum ($ETH), $Sol, and Polygon, which may also be driven by capital inflows and price increases.
The legalization of Bitcoin ETFs means that it is easier for traditional financial investors to enter the cryptocurrency market through compliant channels. Even if they only invest in Bitcoin initially, as they gain a deeper understanding of blockchain technology, they may begin to explore more types of tokens and their role in DeFi and Web3 applications. Therefore, although ETFs directly involve Bitcoin, their market effects may drive the entire blockchain ecosystem.
2. Why is money flowing into other assets?
Although the ETF focuses on Bitcoin, its legalization will enhance the market's overall trust in crypto assets. The launch of the Bitcoin ETF will boost the value of other assets by increasing market trust and making institutional investors pay attention to the entire crypto market. The first compliant and legal asset is Bitcoin, but when Bitcoin successfully attracts large-scale capital inflows, other projects may also gain more attention from investors.
This increase in trust is more reflected in the shift in market sentiment. Although initial capital inflows are mainly concentrated in Bitcoin, the overall value of the cryptocurrency market is often driven by sentiment, so other tokens will also benefit from this positive feedback.
3. Decreased correlation between BTC and other currencies
As Bitcoin becomes a mainstream financial asset, its volatility and market behavior may diverge from other cryptocurrencies. For example, Layer 2 tokens (such as Arbitrum, Optimism) and tokens related to Web3 infrastructure will usher in a round of outbreaks when market sentiment is high because these tokens have greater volatility and speculation space.
4. Analyze the impact of Bitcoin ETF on the altcoin market
After the launch of the Bitcoin ETF, the price fluctuations of altcoins will diverge from Bitcoin, and this differentiation may be very significant in the short term, especially when market sentiment is high. The essence of this phenomenon is that Bitcoin, as a compliance-protected asset, has attracted a large number of institutional funds and mainstream investors, resulting in relatively stable volatility. However, altcoins lack the same regulatory constraints and thus experience far greater volatility than Bitcoin, driven by capital and sentiment.
5. Short-term correlation between Bitcoin and altcoins diverges
When Bitcoin ETFs bring in a large amount of funds, Bitcoin will gather mainstream funds like a "compliance reservoir". Due to Bitcoin's "compliance barrier", this part of the funds will not easily enter the high-risk altcoin field. However, the surge in market sentiment will cause retail investors and speculators with high risk preferences to pour funds into unregulated altcoins, especially those with higher volatility and memes coins.
This differentiation can be likened to a system of a reservoir and multiple buckets: Bitcoin, as a mainstream compliant reservoir, can attract a large amount of stable funds. However, because the reservoir has a "dam" (compliance restrictions), a large amount of investment sentiment will overflow and flow into the small buckets of the altcoin market. Each small bucket represents a different altcoin capacity and volatility. Some altcoins may experience huge fluctuations and drastic changes in water levels (prices) due to excessive influx of funds.
6. Extreme volatility and memes effect of altcoins
The rise of Bitcoin will trigger the price linkage of other currencies, but the volatility of altcoins will far exceed that of Bitcoin due to the lack of regulation. This phenomenon is similar to the outbreak of memes coins on Solana, where the sharp price fluctuations in the short term have greatly weakened their correlation with Bitcoin. This means that the price increase of altcoins in the bull market phase will exceed that of Bitcoin, so that Bitcoin can no longer serve as its price guide.
This can be further explained by the "barrel theory": if Bitcoin is the "long board" of the barrel, it has higher compliance and relatively stable market demand, while altcoins are the "short board" with great volatility and instability. When the market is emotional, the "short board" of the barrel (altcoins) determines the volatility of the overall crypto market, even if Bitcoin is a stable underlying asset.
7. Can Bitcoin continue to be a price benchmark in the future?
In the long run, Bitcoin may no longer be the price vane of the entire altcoin market as it was in the past. As Bitcoin is incorporated into the mainstream financial system, its volatility will be greatly reduced, becoming an asset similar to "digital gold", while other tokens may be closer to high-risk, high-return "tech stocks". This change means that the price trend of altcoins will decouple from Bitcoin and show more autonomous market behavior.
“Water overflowed the container and flooded to lower depressions”: Bitcoin ETFs, as reservoirs, absorbed compliant funds, but due to the surge in market sentiment, some of the water overflowed and flowed into the unrestricted altcoin market. After these depressions (altcoin markets) received the influx of water, prices fluctuated violently, and the rise in the short term would far exceed that of Bitcoin, creating a nationwide speculation effect. Ultimately, whether Bitcoin will continue to serve as a price indicator depends on the degree of stratification in the future crypto market - there will be a significant differentiation between high-stability "reservoirs" and high-volatility "depressions."
The launch of Bitcoin ETF will stabilize the price of Bitcoin, but the fluctuations of altcoins will be driven by market sentiment far beyond Bitcoin, and the correlation between the two will weaken significantly in the short term. This phenomenon can be clearly demonstrated through the metaphor of "reservoir and depression": Bitcoin is a compliant and stable reservoir, while altcoins are depressions with violent price fluctuations. When market sentiment is high, the price increase of altcoins may be far greater. Super Bitcoin, forming a national speculation effect. Bitcoin will no longer be the market price indicator, so who do you think the next indicator will be?
