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Bitcoin ETFs and structural decoupling in the cryptocurrency market: evidence from altcoin correlation dynamics

Author

Listed:
  • Li, Yuxuan
  • Zhou, Yuqin
  • Huang, Jun
  • Xie, Lin
  • Huang, Hancheng

Abstract

The approval of U.S.-based spot Bitcoin Exchange-Traded Funds (ETFs) in January 2024 marked a key milestone in the institutionalization of digital assets. This study examines how ETF introduction reshaped inter-asset dynamics in the cryptocurrency market. Using daily returns from January 2021 to September 2025 for Bitcoin and 18 major altcoins, we apply a Long Short-Term Memory (LSTM) neural network to capture evolving return correlations. Our analysis reveals a pronounced post-ETF decline in correlations across both short-term (6-month) and long-term (12-month) rolling windows. We interpret this structural decoupling as the effect of ‘independent inflows’, whereby institutional capital enters Bitcoin without proportionate investment in altcoins. The findings suggest that Bitcoin is evolving into a distinct, standalone asset class with weaker integration in the broader cryptocurrency market. Policy and investment implications include reconsidering portfolio diversification strategies, reassessing systemic risk, and designing digital asset financial instruments to account for market segmentation and institutional flows.

Suggested Citation

  • Li, Yuxuan & Zhou, Yuqin & Huang, Jun & Xie, Lin & Huang, Hancheng, 2026. "Bitcoin ETFs and structural decoupling in the cryptocurrency market: evidence from altcoin correlation dynamics," LSE Research Online Documents on Economics 137306, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:137306
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    File URL: https://researchonline.lse.ac.uk/id/eprint/137306/
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    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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