Is BTC Enough? A New Perspective on Cryptocurrency Price Formation

Abstract

What are the key factors determining cryptocurrency prices? This study presents a novel perspective that considers the unique characteristics of the cryptocurrency market. While previous studies have used the value-weighted return of the entire cryptocurrency market as a proxy for the market return, this study demonstrates that Bitcoin (BTC) related features serve as the primary determinant of other cryptocurrencies’ prices. Furthermore, we find that BTC’s own price dynamics are primarily driven by trend-related factors. This finding highlights a fundamental difference in market structure compared to traditional equity markets, where market return as the value-weighted return of the entire stock market is dominant in shaping individual stock prices. To derive these conclusions, this study employs factor analysis using machine learning models such as Random Forest, LightGBM, and Transformer, in addition to a traditional linear predictor, to better capture the complexity of the cryptocurrency market. The findings of this study call for a reconsideration of analytical methods in cryptocurrency pricing and suggest practical implications for BTC-based market analysis and ETF design.