Contagion is a term used to describe the spread of financial problems from one area or asset class to another. In cryptocurrency, this phenomenon can occur when an event affects the price of one token and subsequently causes other tokens in its market sector or related sectors to experience similar losses. For example, if Bitcoin sees a significant drop in value due to news about potential regulation, then other major cryptocurrencies such as Ethereum may also feel the effects of that same decrease.
The risk associated with contagion makes it important for investors interested in buying into any particular cryptocurrency market sector or related markets be aware of current events which could lead them towards future dips and drops—not only those directly involving their chosen currency but also external ones too (such as government regulations). This type of knowledge will allow investors to take more informed decisions on how they should allocate their funds amongst different coins across various blockchain networks so that they can better manage any risks posed by possible contagions.
In addition, understanding what might cause contagious behavior between assets within certain markets will help inform traders’ strategies when trading cryptos. By being able to identify correlations between crypto prices over time and predicting how one coin may affect another’s performance during periods where there is high volatility – either through positive growth or negative slumps – savvy traders are able use these insights for higher profits by carefully allocating resources accordingly according to perceived trends throughout each network’s different currencies.
