As the most popular cryptocurrency, bitcoin undoubtedly has dominance in the crypto space. And that dominance towers over traders of “altcoins”, who watch as token prices seem to inevitably tank in correlation with bitcoin. Can they ever stand and gain value on their own merits?
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When Bitcoin Falls, It Takes the Market Down
The major problem with the crypto space is that “altcoins” (historically, any cryptocurrency that isn’t bitcoin) are unable to prove their “singularity”, or reason for existence. Even though BTC grew by over 1,400 percent last year, several other digital assets performed better than bitcoin for return on investment (ROI).
In one extreme case, bank-friendly Ripple XRP surged by over 30,000 percent last year.
As per Bloomberg analysis, when bitcoin’s price spiked, its effect on altcoins ebbed. But when the price of bitcoin dipped at the start of the year, the entire crypto market experienced a “bloodbath.”
Arthur Hayes, CEO of trading platform BitMEX, said: “On the way up, people feel bold and will take more risk. But if bitcoin falls sharply, it negatively affects sentiment across the whole crypto asset class. People sell everything.”
At present, the significant factors that generate tides in the crypto space are governments’ moves to regulate the crypto market, altcoins’ correlation with BTC price and, of course, overall sentiments in the market.
Traders Reject Altcoins’ Individuality
Bitcoin plays the role of a “godfather” in the industry; it has led the way for the advancement of the entire crypto space from the start. It is evident that bitcoin still exalts the most trust compared to other virtual currencies.
According to Spencer Bogart, partner at Blockchain Capital LLC, if a global crackdown were to occur on the crypto market “I would expect bitcoin to be the most resilient”.
However, the FUD spread that as the bitcoin price builds, it’s in the control of professional traders, and not amateur purveyors. The crypto market is a nascent space. However, it is high time traders acknowledged the singularity of altcoins and allowed them to rise and fall on their own issues. Several altcoin communities have strived to combat the FUD spread in the market.
Additionally, there are many tools available from crypto exchanges themselves to gain a better understanding of the market. At press time, as per CoinMarketCap data, the accumulated market cap of the crypto space is $495 billion USD, 36.7 percent of which is bitcoin’s.
Lex Soxolin, global director of fintech strategy at Autonomous Research LLP, told Bloomberg in an email:
“In terms of correlations falling when it rallies, my hypothesis would be that people invest the capital gains in altcoins looking for alpha, and each coin performs differently based on liquidity, narrative, sentiment and lots of idiosyncratic factors.”
It is crucial that traders acknowledge altcoins separately, for the overall growth of the crypto industry. Bitcoin is still expected to lead the way. However, its price dips should not panic traders and reflect on altcoin markets.
As time goes, do you think the correlation between bitcoin and altcoins will decrease? Let us know your opinion in the comments section.
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