Is Bitcoin really Driving the Altcoin Market?
Bitcoin serves as the crypto industry’s gold. However, Bitcoin is not the be-all and end-all of cryptocurrencies; the number of cryptocurrencies in existence rose tremendously throughout the first decade of the crypto sector. There are currently over 5000 altcoins listed on CoinMarketCap. They have a wide range of applications, from governance to powering data oracles. However, few altcoin values are strongly intertwined with the price of Bitcoin, following it through thick and thin. Why?
Bitcoin in the Crypto Market King
Whatever anybody says, Bitcoin was the coin that propelled cryptocurrencies into the mainstream. Over 3,000 rivals may surround the original crypto asset, but it still controls more than half of the cryptocurrency market cap.
Additionally, most altcoins cannot be purchased directly with fiat currencies; instead, the bulk of users first acquire some Bitcoin and then swap it for their preferred cryptocurrency. As a result, if someone owning altcoins wants to exit the crypto business entirely, they will most likely first sell their assets for Bitcoin and then convert Bitcoin back to a fiat currency. Because of this relationship, the value of many cryptocurrencies is frequently linked to Bitcoin.
Not all altcoins follow the same rules.
Bitcoin rose last year, but most altcoins did not. As a result, Bitcoin’s momentum does not always represent the dynamics of the whole market but instead reflects the leading digital asset’s first-mover advantage.
The most intriguing Bitcoin vs altcoin duel in 2020 was probably that of BTC vs yearn. Finance (YFI), a completely innovative DeFi protocol that ultimately produced a so-called “flipping,” exceeding Bitcoin’s price by hitting $40,000. This was partly owing to DeFi’s rapid expansion and the project’s minimal total supply. Bitcoin has since recaptured the top place, and while YFI remains close behind, BTC has maintained its price advantage. On most occasions, Bitcoin’s bullish run does not coincide with altcoins.
Furthermore, some of the more minor currencies are far more reliant on BTC since exchanges only provide them in BTC pairs, whereas the big ones come in various pairings. As more people/institutions begin to use cryptocurrencies for purposes other than speculation/trading, the default beginning pairing with BTC will undoubtedly change.
Final words
The crypto industry is still new and immature, people prefer to put all cryptos together, so they are strongly connected. In addition, Bitcoin was once required to purchase some cryptos, which resulted in price-coupling. However, these variables will become null and void when the crypto industry grows, and cryptocurrency values will no longer be correlated to altcoin values.
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