It is important to realize that Bitcoin was the first cryptocurrency ever and hence, it leads the market trends just like the dollar, probably even stronger in the Digital World. At many instances, it is also referred to as ‘the Bitcoin standard’, which implies that even though there is not an algorithmic relation between BTC and any other token for price fluctuation, all the tokens seem to follow its lead, particularly when the Bitcoin goes down.
It should be noted that the majority of the coins (the popular ones) do not follow BTC blindly. In fact, they sort of exaggerate the downward trend and show uncertainty when it comes to gains.
The reason is somewhat understandable and if you were an active trader towards the end of 2017, you might have done it yourself. As soon as the BTC starts surging, people get hyped and they tend to withdraw their funds from alt coins and invest in the Bitcoin in an attempt to gain short-term profits. This sudden withdrawal of funds causes a great drop in the value of the currencies. However, for some people, that doesn’t work out as they invest at the wrong time and hence, lose everything. So if you look at it, this practice is not so good and has proved lucrative to only a handful.
So, when BTC starts going up, at many instances, the altcoins start going down due to the reason mentioned above and the funniest thing is that when the BTC starts diving, these altcoins dive even deeper. Ultimately, the blame falls on the shoulders of the traders who make decisions on speculations.
Let’s talk about the 2017 crypto hype and how it affected the top 2 currencies at that time. See, BTC was already experiencing the hype and towards the end of the year (in September and October), ETH, LTC, and BTC started taking off, but the later mentioned skyrocketed, leaving the other two, way off the limits. It had hit its all-time highest while LTC and ETH were several times behind the mark. However, as soon as the BTC started going down, all other cryptos, even the LTC and ETH took a sharp nosedive and lost a major market share.
I don’t mean to freak you out here, but the point is fairly simple. In order for all the altcoins to establish their brand and attract mid-term investors, it is crucial that they make their own standing, instead of being indirectly reliant on Bitcoin. If that does not happen, sooner or later, their utility will become questionable and people might lose interest.
Altcoins are not BTC clones
It is indeed a misconception. Unlike BCH, the major tokens like ETH, XVG, XRP or LTC are not the copies of the parent venture. So much so, they are not even remotely related to the BTC in terms of the infrastructure and coding.
This situation begs a question – how on God’s green earth are they related and why does the price follow a relative trend?
Well, the most understandable and rational reason is that they are all cryptos and belong to one niche. Above all, all major alts are listed on renowned exchanges together with BTC and these exchanges features BTC pairs with an array of tokens. Now you must be thinking that Coke and Tesla are also listed on the same exchanges as many other beverage and automobile companies so why don’t they affect the price charts as harshly as the BTC. Please be advised that the crypto industry and all the popular tokens we talk about are way younger than forex in terms of trading and market cap. For instance, the daily trading volume of crypto is just above $30 billion, whereas, forex is more than $5 trillion. So there is a long way to go if crypto wants to get standing.
Well, cryptocurrencies belong to an independent ecosystem that is entirely isolated from external factors and most of the price fluctuations are based upon speculations or ‘indicators’. However, in regular stock exchanges, a comprehensive analysis is involved which determines the price of each stock. In cryptos, since most of the traders (especially the newbies) prefer jumping from one coin to the other for growing up their ETH or BTC earning in order to cash out easily, the market often becomes a wreck!
Long term investors prefer reading the whitepapers of different tokens, use cases offered by the ventures and the tech stack before making an investment. Now this procedure is sane and rational but unfortunately, long term investors do not cause fluctuations as they are in minority, as compared with the short term investors (who are interested in availing quick profits).
If you want to enter this niche, you need to buy a token first and that too happens through BTC or ETH. I mean no matter what type of token you want to buy, all major exchanges require you to purchase these two top coins first and then conduct an exchange. Even though some exchanges allow multiple options now, like DASH, LTC, BTC, ETH, etc., but essentially, BTC has had enjoyed the monopoly for so long that it has become the market leader by all means.
If you look at it, the crux is pretty straightforward. Since altcoins are fairly new, a drop in the price of BTC triggers a panic wave among the community and they all start withdrawing their BTCs as well as other alts. However, when BTC starts surging, the community again withdraws the funds from altcoins and invests in Bitcoin. This is the reason as to why the trend follows Bitcoin in one direction (although abruptly), but often opposes its direction in the other.