Why do all cryptocurrencies plunge together when a crash occurs?

The Truth Behind the Market Plunge

Seemingly independent crypto assets are actually tightly bound by invisible chains. When major coins like Bitcoin and Ethereum face external shocks, smaller tokens are like puppets pulled by strings, inevitably falling in tandem. This is not coincidence, but a natural result shaped by macroeconomic conditions, market sentiment fluctuations, and the strong interconnection between assets.

Why is it important to understand this correlation phenomenon? For market participants, it relates to three core issues: first, how to cut losses in time before risks materialize; second, how to predict market direction through global economic signals; third, how to identify the true drivers behind investor psychology. Mastering these patterns allows you to survive longer in the volatile crypto world.

History Repeats: Data Speaks

Looking back at the past two years, the correlation coefficient between Bitcoin and Ethereum has remained above 0.89, meaning their movements are almost twin-like.

When the Federal Reserve suddenly announced interest rate hikes in 2023, BTC and ETH both dropped about 15% within a few days. Smaller, less liquid altcoins performed even worse, because once retail panic selling begins, these tokens are the first to be “harvested.”

By 2025, the emergence of quantum-resistant blockchain technology once triggered market panic—investors worried that old chains would be phased out. The result? The entire market plunged into a collective frenzy of selling, perfectly illustrating how easily the crypto market is driven by emotion.

Market Status Behind the Numbers

Quantitative data confirms that this “all for one, one for all” pattern has long been established:

• 2025 on-chain correlation data shows Bitcoin and Ethereum price fluctuations remain consistently above 0.89
• During major crashes, the total market cap of crypto usually shrinks by 20-30% in the short term
• Crypto volatility index (CVIX) often spikes by over 40 points within one or two days following major economic announcements or technical shocks

These figures are not meant to scare but to prove a fact: The systemic risk in the crypto market is far higher than in traditional finance.

Practical Strategies for Market Participants

After understanding these principles, market players should do the following:

Keep a close eye on macro signals: Federal Reserve actions, global inflation data, geopolitical events—any of these could be a trigger. Bitcoin is especially sensitive to dollar policy, while Ethereum reacts more to technological upgrades and ecosystem news.

Assess risk exposure: Since top coins and altcoins have a high correlation of 0.89, don’t rely on “diversification” alone to avoid systemic risk. True risk management involves controlling overall leverage and setting clear stop-loss levels.

Insight into market psychology: Every collective sell-off corresponds to a trigger—regulatory threats, technical uncertainties, macroeconomic deterioration. Recognizing these signals early often gives you an edge over the market.

Final Key Insights

The synchronized decline of crypto assets is not random but an inevitable feature of market structural characteristics. Major coins lead, small coins follow; external shocks impact the entire ecosystem; investor sentiment fluctuates unpredictably—these three factors are inseparable.

For anyone navigating this market, remember these points: pay attention to global economic trends, understand the correlations between different tokens, and be wary of extreme market sentiment swings. In this vast and turbulent crypto waters, knowledge and mindset often matter more than luck in determining your ultimate survival.