Most investors in cryptocurrencies are all too aware of the coupling between Bitcoin and the rest of the market. Despite the fact that Bitcoin is the oldest cryptocurrency and therefore both technologically and environmentally inferior to most cryptocurrencies that come after it, it still dictates the price movements of nearly all other cryptocurrencies to a large degree. When the fiat value of Bitcoin rises, other active cryptocurrencies seem to rise too. When Bitcoin falls, however, other cryptocurrencies seem to take a similar, if not more exaggerated beating.
This has, at least in part, to do with pairings on exchanges. Nearly all cryptocurrencies are paired with Bitcoin — and in many cases, Bitcoin is their only pairing. This means that the only way an investor can obtain such cryptocurrencies is through purchase with Bitcoin. Naturally, when Bitcoin falls, currencies that are paired with Bitcoin will fall in fiat value too — even if they have other pairings. This is because traditionally, for a given cryptocurrency, its Bitcoin pairs would boast the highest trade volume.
There are two main reasons why a cryptocurrency is decoupled from Bitcoin.
- It’s dead.
- It’s gained its independence.
There’s no reason to discuss dead cryptocurrencies in this article.
As for the second point, independence is good — but only for cryptocurrencies with a strong use case. Cryptocurrencies with a weak use case would be better off coupling with Bitcoin because at least that way, they can still gain value when they are pulled up by Bitcoin’s bull runs. They are, in other words, essentially worthless apart from pure, uninformed hype. Off the top of my head, I can already think of a few such cryptocurrencies — though for the for the sake of diplomacy, I shall refrain from naming them in this article.
So why is it so good to be independent from Bitcoin if a cryptocurrency has a strong use case?
There are many reasons for this ranging from gaining the attention of new traders to incentivising cryptocurrency exchanges to release fiat pairs .
But the biggest reason for this, I feel, is that it is a sign of investor recognition — recognition that a particular cryptocurrency has its own real-world value that is entirely unrelated to Bitcoin.
In other words, these investors are trading that coin or token based on its utility and not on its potential worth whenever it just so happens to be dragged up or down by Bitcoin’s roller coaster.
This, in turn, is important because most strong tokens and coins have very little to do with Bitcoin itself, so why should their value trends reflect Bitcoin’s?
Take Cashaa tokens (CAS) for instance. CAS is primarily a utility token that will power the Cashaa platform. According to its white paper, the Cashaa team aims to build a “next generation model for financial services which is based on blockchain technology and artificial intelligence which will empower devices with biometric identification systems to solve the problems of the existing financial system for the unbanked as well as banked population.”
Compared to the grandfather of all cryptocurrencies, Cashaa aims to achieve quite a bit more than simply the transfer of wealth between parties. If Cashaa was coupled entirely to Bitcoin, its potential for future growth will be severely stunted and its fiat value will be highly misrepresented.
As it stands, the price movements of CAS, like most other active cryptocurrencies, are still affected by Bitcoin’s fluctuations. However, I assert that this degree of coupling is far less than most others.
During the general cryptocurrency’s market’s bull run in April this year (2018), for instance, CAS did not see much of a value increase. On the contrary, during the more recent bear market, CAS had exhibited multiple bullish trends. This would not have been possible if Cashaa was still tightly coupled with Bitcoin. Evidently, Cashaa investors understand its strong underlying potential and individuality and seem to buy and sell based on the strength of Cashaa itself.
Unfortunately, the cryptocurrency sphere is still in its infancy and many projects with tremendous potential like Cashaa still haven’t released fully functional platforms for active general use. Until that happens, current prices are still highly hyped and speculative and have little else to latch onto other than the price of Bitcoin. This is true even for strong projects with solid use cases, and is one of the many reasons why the Bitcoin coupling is still generally present across the board.
However, I believe that this phenomenon would have to end at some point.
Just imagine if the Dutch East India Company (VOC), widely regarded as one of the first companies to issue bonds and shares of stock to the general public (that is, loosely, the stock market equivalent of Bitcoin), affected the price of all subsequent stocks and shares ever to exist? Apple, Amazon, and indeed everything else on the stock market would be worth nothing now; the VOC had officially ceased its operations and stopped trading over 200 years ago! Of course, this wouldn’t be the case even if the VOC was still in business; ceteris paribus, both Apple and Amazon would still be the giants they are today.
Hopefully, once these blockchain-based platforms are in full swing, noteworthy projects like Cashaa can gain full independence from Bitcoin and proceed to find its true value through its utility — and for promising projects such as Cashaa, I predict this true value to be far, far greater than what it currently is.
