King BTC: Why Bitcoin affects other Altcoins
What are altcoins?
Let’s first talk about what an altcoin is. If you were to pop over to Investopedia and look up the term altcoin you would see the following passage: “Altcoins are the alternative cryptocurrencies launched after the success of Bitcoin. Generally, they project themselves as better substitutes to Bitcoin. The success of Bitcoin as the first peer-to-peer digital currency paved the way for many to follow.” So, here we have our definition of altcoin. Alternative coin.
Regardless of your stance on the legitimacy of various Bitcoin forks, or any ideas you may have about a” flipping” occurring, there is no debate as to how the market is currently divided. There’s Bitcoin, and there is everything else. For the most part, every major crypto exchange trades mainly BTC pairs. It is undeniably the most common coin to be traded for another coin within the crypto space- nobody is trading Ardor directly for Dogecoin, or Iota directly for Stratis. Outside of a scant few fiat currency pairs, and an even smaller amount of altcoin/altcoin pairs, everything passes through Bitcoin. But what does this mean exactly?
Why does an abundance of Bitcoin pairs mean alts have to drop when Bitcoin does? Let’s look at a few contributing details.
1. Seniority, Bitcoin is the first and most well-known cryptocurrency. Though it may be the oldest, we’re long past the times where it could be considered the ‘best’. There’s almost nothing about bitcoin that one or more altcoins haven’t done better in some fashion. Transaction speed, transaction cost, smart contracts, anonymity- all done better by someone else. Despite this, Bitcoin will always be the face of cryptocurrency as it finds its place in the mainstream. It’s the pillar of the entire industry, and it’s what every trader and investor keeps one eye on at all times. If the public loses faith in bitcoin as a concept, the repercussions will be dire for the industry. The likelihood of Stellar Lumen or Neo surviving in a world where bitcoin itself could not stand is extremely slim.
2. Accessibility, A large part of the reason bitcoin price affects alts so heavily is due to the fact that it’s the primary gateway for most users to enter the industry. If you want to buy a token on some exchange and all you have is fiat, there’s a pretty strong chance you’ll be buying bitcoin and trading it for the altcoin later
3. Only Exit, For the vast majority of traders, cryptocurrency is ‘one way in, one way out’. The other side to the primary entrance coin is Bitcoin is the most common coin used to exit crypto markets, meaning anyone who wants to get out of crypto, first has to sell his altcoin for bitcoin and then bitcoin for fiat.
Generally we can take as a rule of thumb, when Bitcoin is volatile, Altcoins go down. While Bitcoin cools off with sideways action, or slow upwards movement it is usually good for Altcoins and can create a so called ”Alt Season” meaning; a time period in which Altcoins thrive and increase very rapidly.