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why bitcoin’s price affects the price of altcoins

Bitcoin is widely regarded as the first cryptocurrency. It’s credited with putting any form of cryptocurrency on the map. It also made everyone aware that cryptocurrencies are real and that they can bring a lot of good into the world, not just for individuals, but also for the financial community.

Since then, many other cryptocurrencies have sprung up. We now live in a world of over 1,000 cryptocurrencies, and the number continues to increase. You may be asking yourself: “why are there so many cryptocurrencies?” It’s because each coin serves a different purpose. For example, Litecoin was invented to fix the transaction speed of bitcoin, but more on that later.

Altcoins have been around since 2011, with Namecoin being the first (created in 2011 right after the creation of bitcoin). So far, they have a lot to learn from their predecessor.

What’s the difference between Bitcoin and Altcoin?

What’s the difference between Bitcoin and Altcoin?

We already know that bitcoin is the first and sort of the catalyst for all cryptocurrencies. Altcoins basically refers to “everything else” (although some people don’t include Ethereum in that category). A lot of altcoins are either forks or clones of bitcoin like Bitcoin Cash or Litecoin). Basically, the main selling point of altcoins was that some gave “solutions” to bitcoins biggest problems. They claim to be upgrades that solve the flaws of Bitcoin.

Let’s go back to Litecoin as an example. Litecoin is often regarded as the “silver” to Bitcoin’s “gold” in the sense that Litecoin was created for cheaper and everyday purposes. The biggest difference that Litecoin has over Bitcoin is the transaction speed. Although Litecoin uses the same open-source code as bitcoin, there are still some noticeable differences. Litecoin generates blocks around four times faster than bitcoin which allows it to confirm the legitimacy of transactions a lot quicker.

Factors of Bitcoin that affect the Price of Altcoins

Factors of Bitcoin that affect the Price of Altcoins

There are a lot of factors to why bitcoin’s price affects the price of altcoins. Although no one really knows for sure what the direct correlation is between the two, there is certainly some speculation. Here are a few factors that affect the price of altcoins:

Bitcoins are Easy to Convert

Bitcoin is definitely the most liquid cryptocurrency. Most altcoins need to be converted to bitcoin before they can cash out their altcoins. Because bitcoins are easier to convert, they end up being a more attractive cryptocurrency. This is because it’s the first entry point into the cryptocurrency market and it’s the fastest exit point.

Bitcoin has also evolved so much to the point that you can trade it for practically anything nowadays. There are a lot of ways to obtain bitcoin and there are a lot of things to spend your bitcoins on. When it comes to usefulness, Bitcoin is on top.

Biggest Market Share

Since bitcoin is the oldest and most popular cryptocurrency, it dominates the market share. This is because bitcoin is more represented by the media, used by a lot of people on numerous things and, so far, the most profitable. Since its popularity boom in late 2017, it isn’t as popular as it once was but it still continues to dominate the market.

Bitcoin at its Core

Bitcoin is still regarded to be the most secure crypto asset. Although bitcoin wallets and bitcoin exchanges holding bitcoin have been hacked, the blockchain itself has never been hacked in its 10 years of existence.

The blockchain has the largest network of mining operators and processing power. It also hasn’t compromised security or decentralization to achieve scalability. These are the traits that earned bitcoin the title of “digital gold”. They’re also the reason why major financial institutions are more willing to put their stamp of approval behind it and even invest in the growth of Bitcoin, hence the rapid growth in price.

Generally speaking…

Majority of the trading that goes on in cryptocurrency markets are between bitcoin and other cryptocurrencies. This is because altcoins do not pair with fiat currencies and bitcoin is the next best option. Therefore, when bitcoin is stable, it forms the ideal base currency for buying altcoins. This is why altcoins tend to do well when bitcoin is struggling.

The general rule is that bullish bitcoin will usually drive altcoin holders to dump their altcoins into bitcoin. Since bitcoin is the anchor of the crypto market, traders will begin to sell all other coins when bitcoin’s price starts to fall contributing to changes in altcoins’ prices.

What Happens to the Price in Different Bitcoin Scenarios?

What Happens to the Price in Different Bitcoin Scenarios?

Each altcoin has a dynamic price correlation with bitcoin, which means they all have different relationships. This means that sometimes, bitcoin’s price changes can have direct and specific effects depending on the altcoin you’re looking at.

Here’s a general overview of what would happen in bitcoin scenarios (according to Cryptocurrencyfacts):

When bitcoin’s price goes up quickly, it will likely:

  • Suppress or depress altcoin prices as money will flow into bitcoin OR
  • Take altcoins along for the ride (generally true when a new wave of adoption is happening)

When bitcoin’s price goes down quickly, it will likely:

  • Depress altcoins as money flows into fiat OR
  • Cause altcoins to boom (especially in terms of bitcoin pairs, where you trade bitcoin for altcoins as money flows into them)

When bitcoin’s price is stable, it will likely:

  • Cause altcoins’ prices to stabilize along with it as people wait for a clear direction of the market OR
  • Cause altcoins to boom as people look for returns and try to get favorable trades in terms of bitcoin pairs

For a more in-depth explanation of the correlation of bitcoin prices and specific altcoin prices, you can check this article on Coindesk.

The Center of the Crypto Universe

How Does Bitcoins Rise Affect The Altcoins

Despite there being over 1,000 cryptocurrencies, bitcoin still remains to be at the center of the crypto universe. Every move it makes has a direct effect on the price of all other cryptocurrencies. That makes it important for an altcoin enthusiast or investor to take a closer look at bitcoin’s price.

The truth is, who knows if or when another cryptocurrency is going to dominate the market? For another cryptocurrency to dominate the financial mainstream, it will have to provide a convenience that the people can benefit from. Right now, bitcoin provides a lot of benefits like countless exchanges to sprouting peer-to-peer marketplaces. Bitcoin provides that convenience the unbanked, underbanked and overbanked can financially gain from.

In our reality, bitcoin is the king and it shows no signs of stepping down any time soon. I guess we’ll just have to wait and see.

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