In the wake of Bitcoin’s recent decline by 0.42 % on moderate daily volume and overnight prices trading in a short range between $19,500 to $19,800, I thought of studying the interdependence of Bitcoin and altcoins. Here's hoping it will serve as a gentle reminder of Bitcoin's varying ascendancy in this dismal hour.
Why are Bitcoin and Altcoin Intrinsically tied?
There is no one reason for this dependency but an amalgamation of factors. Since Bitcoin's creation in 2009, it has garnered the highest recognition, most adoption, and a massive daily volume making it stand tall among all its contemporaries. These attributes of bitcoin have made it the natural choice as a reserve currency for many exchanges.
As a result, altcoins' value is often measured against Bitcoins, causing them to fall and rise symbiotically.
Trading pairs
One key reason for the interdependency is that most exchanges don't let people buy altcoins directly. In other words, to buy an altcoin, one needs to buy Bitcoin or Ethereum first and then use that to buy the altcoin. Additionally, many people use trending altcoins to trade them for more Satoshis (100 million satoshis is 1 bitcoin).
So, it's fair to say that Bitcoin remains the first/last transitional point of converting any crypto into fiat currency or vice versa.
Market Dominance
In the above picture, one can see the all-time market dominance indicated in orange compared to the other cryptocurrencies. You may notice how Bitcoin’s market dominance has reduced over time, especially after the introduction of Ethereum (indicated in deep purple) in 2015, and yet remains on the top with a decent margin.
Bitcoin's market dominance is a crucial metric when it comes to trading. Investors closely follow the price movement of bitcoin and base their trading decisions of other cryptocurrencies on that.
Below is a chart, for a better visual representation that shows the co-movement of price when it comes to Bitcoin and other altcoins.
Driving sentiments
The lack of a regulatory body has perks, but every coin has two sides(pun intended). Cryptomarket volatility has always been a cause of perturbation for investors, any small or big event has had a domino effect on the investor community. Let's take an example:
In September 2021, following the cryptocurrency ban in China, we saw a fall in almost all cryptocurrencies. BTC, ETH, and other altcoins tanked (visible in the chart below), pushing everyone into a bear market.
Conclusion
Bitcoin has seen better days, with its price plunging below $20,000 from $68,000 in late 2021. Even in its feeble state, bitcoin maintains its position as the Queen bee of the
crypto-hive. Apart from the listed reasons, Bitcoin's integrated community is also an adding factor to its dominance. Unless more established currencies with strong use cases come along, it's safe to say that Bitcoin will continue to remain in the center of the crypto trading scene, affecting all its compeers.
Source: CoinMarketCap TradingView
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