The similarity of the movement of digital currencies is known as correlation, and it is a common phenomenon in the digital currency markets. This phenomenon occurs as a result of several factors, the most prominent of which are:
1. Bitcoin effect:
Bitcoin is the leading digital currency, and the movements of other currencies are often linked to its performance. If the price of Bitcoin rises, other currencies tend to rise and vice versa. This is due to Bitcoin’s market dominance.
2. The same economic effects:
Cryptocurrencies are affected by the same economic and geopolitical factors such as regulatory news or central bank movements. Therefore, currencies move in one direction as a common reaction.
3. Trading Pairs:
Most currencies are traded against Bitcoin or Ethereum on exchanges. Therefore, if the value of Bitcoin or Ethereum changes significantly, the prices of other currencies will be affected.
4. Market Emotions:
The digital currency market often moves based on general sentiment such as fear or greed. These sentiments can lead to simultaneous movements between currencies.
5. Similar Blockchain Technologies:
Some currencies operate on similar networks or offer similar services, which makes them move in sync due to technical trends.