To be a successful trader in the crypto market, you need to have a balanced knowledge of Bitcoin and altcoins and how the two complement each other. The fact remains that the two share a relationship in the crypto market, and having substantial knowledge of this provides more clarity while making investments. For instance, a Bitcoin price analysis can help determine the future price outlook of some altcoins while making investments or selling.
This article will provide a comprehensive overview of Bitcoin and altcoins and their close relationship. We will also cover the price correlation between Bitcoin and altcoins and the market dynamics. Brace up as we dive into this exciting topic.
Overview of Bitcoin and Altcoins
Bitcoin is widely known as the first cryptocurrency and the biggest in terms of total market value and prominence.
Bitcoin was created by an anonymous developer or group of developers named Satoshi Nakamoto, and it was unveiled to the public in 2009. Besides being used as an alternative payment method to fiat, Bitcoin is also used as a reward for miners who confirm transactions within the Bitcoin blockchain. The creation of Bitcoin led to the development of other cryptocurrencies, widely regarded as “altcoins.”
A major way to differentiate Bitcoin from altcoins is that altcoins are widely regarded as any other cryptocurrency besides Bitcoin. Simply put, altcoin is a compound word of the words: “alternative” and “coin.” Hence, in the crypto market, they are the alternatives to Bitcoin. If you are not buying Bitcoin in the crypto market, you will likely buy an altcoin. The first altcoin in the crypto market was Litecoin (LTC), which forked from the Bitcoin blockchain around 2011.
Altcoins are known to have a broader range of use cases than Bitcoin, and they get the credit for exploring or exploiting the other use cases of cryptocurrencies. Different altcoins serve different purposes in their respective blockchains. For instance, you can use the Ether altcoin on the Ethereum blockchain for transaction fees. Ether can also be used on the Ethereum blockchain for staking purposes. Other prominent altcoins in the crypto market are Ripple (XRP), Cardano (ADA), Binance Coin (BSC), Solana (SOL), Bitcoin Cash (BCH), and many others.
Price Correlation Between Bitcoin and Altcoins
There’s a relationship between Bitcoin and altcoins when it comes to price movements, and we will discuss that below:
- When Bitcoin Moves Slowly
When the Bitcoin price moves very slowly, the reaction of altcoins is often different compared to when the BTC price moves faster. When the Bitcoin price moves slowly, many known and unknown altcoins tend to flourish because traders tend to be adventurous during this period. As a trader, you want to trade cryptocurrencies other than Bitcoin to make faster and more significant gains.
- When Bitcoin Surges in Price
When Bitcoin surges in price, most major altcoins tend to rise in multiples since they are known to closely follow the price movements of Bitcoin whenever there’s a surge or uptrend. Whenever there’s an increase in Bitcoin price, it leads to a renewed interest from many crypto traders.
This renewed interest is also channeled to other cryptocurrencies, as many traders want to profit. In most cases, the influx of traders to a particular altcoin causes the price to experience a spike in increase. For instance, when Bitcoin recorded an all-time high of $68,789.63, many altcoins soon followed suit and reached subsequent all-time highs.
- When there’s a Downtrend in Bitcoin’s Price
Whenever the price of Bitcoin dips, the market is fearful, and other major altcoins are more likely to follow suit. For instance, when Bitcoin’s price decreased due to the news of the FTX collapse, the price of many altcoins suffered devastating consequences, too.
When Bitcoin prices drop, many traders lose confidence in other tokens in the market. This loss of confidence in a token’s price performance often results in traders taking actions like shorting the market, which leads to further deterioration.
In summary, while the price of most altcoins follows the direction of Bitcoin’s price, this is not always the case. Depending on the events and activities surrounding the altcoin project, it could have news differing from the direction Bitcoin is headed.
Market Dynamics Of Bitcoin and Altcoins
- Investor/Trader Behaviour
Trader behavior is a market dynamic that closely unites Bitcoin and other cryptocurrencies. How most traders behave towards Bitcoin can signify whether other altcoins will have a good time. For instance, assuming there’s a massive dip in Bitcoin price, it usually indicates a lack of confidence in the crypto market.
When traders are not confident in Bitcoin, they will likely not do the same for other altcoins. On the other hand, when traders start piling up more Bitcoin for long-term gains, it signifies confidence in Bitcoin’s long-term potential. This subsequently extends to most other altcoins in the market.
- Market sentiments
The market sentiments of Bitcoin and altcoins are closely related. In the crypto market, you, as a trader, mainly have two forms of sentiments: greed and fear. Greed is when a trader wants to add as many tokens as possible into their portfolio, possibly due to fear of missing out (FOMO). On the other hand, fear as a market sentiment is when you sell off your cryptocurrencies in your portfolio because you are afraid of a market downturn.
As said before, the market sentiments of Bitcoin and altcoins are closely interrelated. When the market sentiment of Bitcoin is greed, it is a good feeling, and it usually signifies the prosperity of the market. Here, many traders are likely to be buying other altcoins in their bid to maximize their profit in the market. For instance, according to data from Coinstats shows, there’s 74% greed in the market out of a possible 100. Subsequently, many altcoins are having a bullish rally within this period, like when the sentiment is in fear.
Future Outlook
A future outlook on the relationship between Bitcoin and altcoins shows that this may diminish further. The share of Bitcoin’s total market value has been dropping steadily over the years, which signifies lesser dependence on Bitcoin price trajectories from altcoins.
There’s also the appearance of secondary markets, where most altcoins strive to stay independent of Bitcoin price movements. However, there is still a long way to go, meaning that Bitcoin will continue to have relationships with other cryptocurrencies for a long time. If not for anything, it will continue to serve as the head of different cryptocurrencies.
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