Key takeaways:

• A acute decline in the value of bitcoin often creates a systemic contagion effect, causing the value of altcoins to decline through both liquidity and trust channels.

• During crises, the market tends to view cryptocurrencies as a single risk asset rather than valuing individual utility, as seen in the high BTC-ETH and BTC-XRP correlations.

• Correlation and beta analyzes are necessary to quantify how deeply Ether and XRP depend on Bitcoin’s performance.

• Monitoring correlation indicators, using derivatives, and maintaining stable or income-producing assets can facilitate protect against Bitcoin shocks.

Bitcoin’s (BTC) dominance in the cryptocurrency market has long been a defining feature of cryptocurrency cycles. But what happens if Bitcoin’s dominance weakens or its price drops by 50%? In this scenario, the two largest coins, Ether (ETH) and XRP (XRP), become critical tests of the market shake-up.

This article explains how to evaluate ETH and XRP during the Bitcoin shock, measure the relationship, assess risk, and develop effective hedging strategies.

Why Bitcoin Dominance Matters

In time-honored stock markets, when the biggest player in an industry stumbles, the consequences are immediate. Smaller companies often lose value because they are dependent on the leader’s ecosystem, investor trust, supply chain connections and reputation. The same logic applies to cryptocurrencies: Bitcoin serves as an “anchor asset.” When Bitcoin weakens, the entire market loses its sense of stability and direction.

Historically, Bitcoin has had a huge share of cryptocurrency market capitalization, known as the “dominance” metric. Most altcoins, including Ether and XRP, have shown a powerful correlation with Bitcoin price movements.

For example, following the announcement of tariffs on October 10, 2025, the cryptocurrency market experienced a widespread liquidation event that sent Bitcoin plummeting. According to CoinMetrics, over the next eight days, the BTC-ETH correlation increased from 0.69 to 0.73, while the BTC-XRP correlation increased from 0.75 to 0.77.

This acute convergence confirms that during a liquidity crisis caused by macroeconomic concerns, altcoins are not separating based on their individual utility. Indicators such as Ether transaction volume or institutional adoption of XRP provide little protection in such scenarios.

Instead, a high positive correlation serves as an empirical measure of shared systemic risk. It shows that the market views the entire cryptocurrency sector as one asset class. This amplifies the further effects of a BTC-led collapse on ETH and XRP.

The implications are clear: if Bitcoin’s dominance declines or its price declines, ETH and XRP are unlikely to move independently. They would probably suffer for two reasons:

Liquidity/structural channel

The market structure, including derivatives, exchange flows and investor behavior related to BTC, is weakening. A major Bitcoin crash could trigger large-scale liquidations driven by margin calls and cascading sell-offs. This often leads to massive capital outflows that hit all crypto assets, regardless of their fundamentals. They fail simply because they share the same risk basket.

Sentimental channel

The division of the original decentralized resource undermines the fundamental thesis of the entire crypto industry. This undermines investor confidence in the long-term viability of cryptocurrencies. As fear grows, investors gravitate toward safer assets such as fiat and gold. The result is a prolonged bear market that saps investment appetite for both Ether and XRP.

How to measure Bitcoin dependency and risk

Step 1: Define the shock scenario

The analysis begins by selecting a credible high-impact Bitcoin event. This could include defining a specific price shock, such as BTC dropping 50% in 30 days, or a structural change, such as Bitcoin’s dominance dropping from 60% to 40%.

Step 2: Quantify the relationship

The next step is to calculate the current Pearson correlation coefficient between ETH, XRP and BTC. This statistical measure captures the linear relationship between daily asset returns, providing a benchmark for the relationship. A value closer to +1 indicates that the altcoin is highly related to BTC performance.

Step 3: Estimate the immediate price reaction

Using the correlation data, apply regression analysis to calculate each altcoin’s beta (β) relative to BTC. The beta coefficient estimates the expected movement of the altcoin’s price for each unit change in Bitcoin. This is similar to calculating a stock’s beta relative to a benchmark index such as the S&P 500 in time-honored finance.

For example, if β ETH to BTC is 1.1 and the defined scenario assumes a 50% decline in BTC, the suggested ETH movement would be -55% (1.1 × -50%).

Step 4: Adjust for liquidity and structural risk

The correction requires going beyond straightforward beta calculations and taking into account key risks related to market structure. Lean exchange order books should be analyzed for liquidity risk, while open high-yield derivatives positions should be assessed for structural risk and potential cascading liquidations.

For example, if the suggested -55% shift from step 3 is compounded by shallow liquidity, the actual realized loss could raise by another 10%, for a total decline of -65%. Additionally, open interest and margin positions should be reviewed, as high leverage can accelerate declines through cascading liquidations.

What will happen to Ether and XRP in a Bitcoin shock scenario?

In time-honored finance, a acute decline in the S&P 500 index or the sudden collapse of a major broker often triggers a quick, mass flight to safety – an effect known as “financial contagion.” The cryptocurrency market is exhibiting similar dynamics, but in a faster and often more amplified form, usually triggered by a Bitcoin-centric shock.

Data from previous crises, including the FTX and Terra crashes, reveal a clear pattern: when Bitcoin falls, altcoins tend to follow suit. Bitcoin continues to serve as the leading risk indicator in the market.

In such a scenario, liquidity often flows into stablecoins or leaves the market altogether in search of protection from volatile assets. While Ether benefits from resilient Layer 1 tools, it is not immune; during market stresses, its correlation with Bitcoin often increases because institutional capital treats both instruments as risky assets. However, locking in Ether staking and a broad decentralized ecosystem of applications could provide a utility-based foundation, potentially helping it bounce back more quickly once the crisis subsides.

On the other hand, assets like XRP that face higher regulatory and structural risks and lack extensive, organic yield mechanisms on the Ether chain could be disproportionately affected. Such shocks often trigger a vicious cycle in which the collective loss of trust outweighs the token’s fundamental utility, causing a correlated decline across the market.

Did you know? Although Bitcoin is typically uncorrelated with the S&P 500 Index, during times of extreme financial stress – such as the Covid-19 pandemic – its correlation with the equity index tends to tighten significantly.

How to protect your strategy if BTC loses its dominance or its price drops

Protecting your cryptocurrency portfolio against a acute decline in Bitcoin’s value requires more than basic diversification. Systemic shocks have shown that extreme correlations often offset the benefits of spreading risk.

Browse derivatives

During periods of extreme panic, the futures market can trade at a significant discount to the spot price. This creates opportunities for sophisticated traders to conduct relatively low-risk, non-directional arbitrage. In this way, they employ market inefficiencies as a hedge against volatility, rather than taking directional price exposure.

Diversify your portfolio with risk buffers

Hold positions in tokenized gold, real world assets (RWA) or fiat-backed stablecoins to preserve portfolio value. These assets act as liquidity reserves when cryptocurrency markets go into a downward spiral.

Monitor dominance and correlation coefficients

Tracking the rolling short-term correlation of ETH and XRP to BTC can serve as a real-time warning signal that diversification benefits are fading. Confirms when immediate protective action may be necessary.

Rebalancing towards profitable positions

Move some of your assets into pools of shares, loans or liquidity that generate profit regardless of the direction of the market. Steady profitability can facilitate offset valuation losses and raise the potential for economic recovery.

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.