What happens when the Bitcoin Price Increases
Top 10 coins | Credit: CoinMarketCap
Ethereum price chart. | Credit: TradingView
When bitcoin Price increase: The correlation in terms of market capitalization
Total market capitalization | Source: coinmarketcap.com
Total market capitalization (excluding Bitcoin) | Source: coinmarketcap.com
- Most exchanges use Bitcoin as the reserve cryptocurrency. Being the first cryptocurrency in existence, Bitcoin has the highest market cap, highest daily volumes, highest recognition, and adoption. This made it a natural choice to become the reserve currency as more and more altcoins entered the market. All altcoins exchange rates are being priced against Bitcoin.
- Simultaneous buying and selling in the cryptocurrency sector also account for the proportionate movement of altcoins with Bitcoin. Since the value of currencies, including cryptocurrency, usually gets affected by societal, political, and economic events (or any events that make the news), many crypto users make predictions using these factors and sometimes get into panic buying and selling at the same time, which causes a proportionate increase or decrease in coin values across the whole sector.
- Bitcoin is like the USD of the crypto market. The value of every altcoin has to be first converted to the equivalent of the Bitcoin value before it is converted to USD. So when you see the price of an altcoin in USD, this is actually altcoin’s price in relation to the exchange rate Bitcoin with USD.
- Bitcoin exchange rate determines all altcoin prices, not their USD exchange rate. With this, it is obvious that when the Bitcoin price increases against the USD, all other cryptocurrencies will follow. Even the Litecoin price most at times also duplicates bitcoin price movements. The only difference here is that the complexity of mining LIT is not affected. The same connection is seen on ERC20 tokens, for instance: when ETH goes down, those token does same and ETH is equally affected by BTC.
- There are some companies that when something bad happens to them, almost all stocks in the same industry sell-off. This is because of their importance and the market space they occupy in that industry. Similar to this traditional stock market, Bitcoin is the reserve and so altcoins generally move along with it whether the overall cryptocurrency market contracts or expands or contracts.
- Bitcoin has the first movers’ advantage and being the bedrock of Altcoins (from a coding perspective), traders use it as an indicator of market felling. They literally wait for Bitcoin to make a good move before they enter theirs trades on Altcoins. So, apart from the fact that when they sell, they sell to Bitcoin, traders have to measure Altcoins in BTC or Satoshi, which is a fraction of one Bitcoin and is evaluated in FIAT. That’s basically what makes Alts worth.
Monique is a crypto writer, graduated in journalism and translation, a former editorialist in the national press.