Bitcoin: Why Do Altcoins Usually Follow The Price Curve Of BTC?

Bitcoin (BTC) is considered by many to be a synonym for crypto currencies. However, more than 3,000 Altcoins are listed on crypto exchanges worldwide. But in their price development they often lean against Bitcoin. Why is this so?

Twelve years back in October 2018 the Whitepaper about Bitcoin was published and it was to become the cornerstone for the entire crypto industry. The concept of a decentrally organized digital currency based on a block chain found thousands of imitators. Meanwhile services seize like CoinMarketCap well 3,400 so-called Altcoins, thus crypto currencies, which represent an alternative to Bitcoin. Investors know that the Altcoins in their price curve often more or less follow Bitcoin. This has several reasons:

  • Bitcoin is the undisputed lead currency in the crypto market and behind BTC stands more than half of the market capitalization of the total market.
  • This leads among other things to the fact that investors look at the price of Altcoin in BTC and that the quotation in US dollars is not the only important factor.
  • Many Altcoins cannot be bought or traded directly against fiat currencies such as US dollars or euros. Investors then buy Bitcoins as a widely accepted crypto currency and settle their deals with Altcoins in BTC.
  • Bitcoin is the reserve currency in the crypto industry, large market participants such as crypto exchanges hold considerable parts of their reserves in BTC. Even the Stablecoin Tether (USDT) is partially covered by BTC.

This set of reasons demonstrates Bitcoin’s exceptional position compared to Altcoins and explains why price curves move through highs and lows together. But of course there are exceptions:

  • Investors sometimes shift capital from Bitcoin towards individual Altcoins if they currently see greater chances of profit there. In the fall of 2020, this can be seen in the price developments for the coins of the booming DeFi sector, such as UNI (Uniswap), (YFI) or Chainlink (LINK), which are largely uncoupled from BTC.
  • But watch out: If Bitcoin starts a bull market, experience shows that the capital flows back to BTC just as quickly.
  • By far not all Altcoins will survive in the market in the medium and long term. Binance CEO Changpeng Zhao, for example, argues that Altcoins are at the end of their tether when, three years after their launch, they have no practical applications and no further technological development. Their price curves then fall towards nowhere.

Conclusion: Bitcoin is and remains the crypto lead currency

One likes it or not – dominance and history guarantee Bitcoin a unique position among the crypto currencies. The comparison to the US dollar on foreign exchange and commodity markets is permissible. For you as an investor this means: The price curve of BTC is an important indicator for the overall market and you should already have good reasons if you want to focus your strategy on Altcoins and leave Bitcoin out.

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