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With the value of ADA being an important incentive to participate in the blockchain, and a stable value being an important indicator for the health of the Cardano ecosystem, how can the 1:1 mirrored short term price movements with BTC be explained?

ADA-EUR 1 min candlestick

BTC-EUR 1 min candlestick

Bitcoin is a proof of work blockchain that one may expect to lose in value with less climate-impacting proof of stake blockchains like ADA gaining popularity. Without an obvious connection between these two, many people could draw false conclusions from price developments observed in ADA (or other coins, for that matter)

While differences in individual market development can be observed in longer time-frames (which are NOT topic of this question), there seem to be correlations between the price development of BTC and the price development of ADA.

How can this be explained?

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  • The prices are not always correlated (just look at the last couple months). When they are its because the drop in BTC reflects negative sentiment in the crypto market as a whole. Also, trading algorithms (bots) probably trigger on BTC fluctuations as well.
    – nalyd88
    May 23 at 12:49
  • I was talking about short term changes, as emphasized. I have added some screenshots to show what I mean. Of course, when looking at the long term development, ADA is overall more solid, which represents the solid foundation and better outlook. But where does this obvious behavior as seen in m screenshots come from? A crashing PoW blockchain should not impact other PoS blockchains in such a way. I would expect the opposite behavior. A negative crypto sentiment would only show slower changes, and not these 1:1 changes. My question remains, there must be a connection that is not obvious to me.
    – Peter1807
    May 23 at 15:56
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    This question has no clear-cut fact-based answer. It is a matter of opinion and market speculation.
    – gRebel
    May 23 at 23:13
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    @gRebel, how is this opinion based and market speculation? I am looking for a clear-cut fact-based answer and already got the first replies. I don't want to know what influences the prices in general. I want to know, how it comes that the BTC movements are mirrored 1:1 on ADA. (Ignoring independent movement on ADA which can be seen over longer periods of measurement)
    – Peter1807
    May 24 at 0:23
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There are many algorithmic trading bots that take advantage of arbitrage between different exchanges & token pairs.

In your example, the price of BTC/USD is decreasing. If the ADA/BTC price does not change, then the ADA/USD price will decrease by the same percentage. This is because arbitrage bots find opportunities where the implied price ADA/USD / ADA/BTC is different from the market price of BTC/USD, and buy/sell all 3 pairs quickly to capture that inefficiency as profit.

tl;dr In order for the price of ADA/USD to remain the same, ADA/BTC would need to increase at the same rate that BTC/USD is decreasing.

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  • Is ADA/BTC not determined by ADA-XXX-BTC with XXX being some fiat? With BTC/USD going down I would expect ADA/BTC to go up and ADA/USD to remain the same.
    – Peter1807
    May 24 at 0:19
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    Too late for an edit: I read up on arbitrage. With ADA/fiat, ADA/BTC and BTC/fiat being exchanged with independent rates, this arbitrage trading is very likely the reason for this market movements. This is probably the connection that was not obvious to me. I really underestimated the impact of these trading bots! That being said, your answer is what I was looking for! Thank you!
    – Peter1807
    May 24 at 0:28

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