For keen observers in the cryptocurrency ecosystem, it will be apparent that growth in Bitcoin (BTC) is usually accompanied by a complementary growth in some of the alternative cryptocurrencies out there. The growth observance has likely posted many unanswered questions in the minds of many as not all altcoins are built as a fork of Bitcoin and many may tend to wonder where the growth correlation emanates from.
The cryptocurrency ecosystem features numerous digital currencies and tokens, all built using blockchain technology and infused with the feature that makes one token work in relation with others, particularly in an exchange scenario. For many ‘superficial investors’, a look at the Bitcoin market may be enough to depict what is happening in the general cryptocurrency market as a whole.
At the time of writing which is (2:32 PM, UTC-1), the overview of the performance of the top 10 cryptocurrencies according to crypto market data aggregator CoinMarketCap, shows in retrospect how the altcoin market responds to either a bullish or a bearish run in the price of Bitcoin.
Bitcoin Growth and the Altcoin Market Run
The top 10 cryptocurrencies as shown on CoinMarketCap are having a bearish run in tandem with a dip in the price of Bitcoin. Over the past 24 hours, BTC has seen a 1.19% drop to $19,136.06 and a corresponding 0.50% dip in the past 7 days. Ethereum, the second-biggest cryptocurrency by market capitalization is also down 0.91% while XRP is seeing a 3.72% dip. A similar bearish run is seen for Litecoin (LTC), Bitcoin Cash (BCH), and Chainlink (LINK) to mention a few.
The snapshot position of the entire Altcoins gives credence to the argument that the altcoin rally is dependent on Bitcoin.
Where Is the Point of Intersection of this Interdependence
The explanation for the interdependence of altcoins on Bitcoin is not necessarily based on the fact that Bitcoin is the pioneering digital currency as many may adduce. Bitcoins however the yardstick or the base cryptocurrency through which most of the other altcoins are purchased on cryptocurrency exchanges. So, the purchase of bitcoin, followed by the purchase of an altcoin, push the price of both coins up
Also, anytime an investor wants to liquidate their altcoin position, they’d usually need to do so by first converting their coins to Bitcoin before cashing out. With the presence of numerous markets on cryptocurrency exchanges as we have today though, this altcoin withdrawal route may be bypassed though.
Another justifiable correlation that links altcoins to Bitcoin is the fact that they all are in the same asset class. For instance, the advent of the Coronavirus pandemic had a massive toll on some industries like the travel and hospitality industry. And what affected one company in this industry is likely to affect the others. The same applies to the digital currency ecosystem. A perceived pump in the price of Bitcoin is likely to have a corresponding impact on the associated altcoins.