Why Does Bitcoin Have Such a Big Influence On Other Cryptocurrencies?

Why Does Bitcoin Have Such A Big Influence On Other Cryptocurrencies?

By Kriss
Published on: June 14, 2021

Bitcoin is the original cryptocurrency that jump-started the entire industry. This pioneering status has enabled it with a multi-billion user-base which in turn helped skyrocket its price and provide the most secure network in the ecosystem. While each one tries to become a better version of Bitcoin, most of the time, they just follow its lead. It’s important to understand that Bitcoin often has the final word when it comes to market sentiment. Experienced traders and investors always check Bitcoin before buying or selling their altcoin position.

What is Bitcoin?

Bitcoin is a peer-to-peer cryptocurrency, which means that it operates without any central authority, unlike fiat currencies. The term “digital currency” was first coined by Nick Szabo in 1998. Since then, many alternative digital currencies have emerged, with some of them having limited market liquidity and limited usage. Bitcoin is different from these currencies in several ways. Firstly, it’s the first-ever truly distributed and decentralized digital currency. Not only that, but it also has a market cap that is four times greater than the entire market cap of Ethereum and eight times that of Ripple. Moreover, it is the first, and to date only, cryptocurrency that is not governed by a single central authority.

How Bitcoin influences other cryptocurrencies?

Bitcoin’s adoption and rising value have led to it becoming one of the most influential cryptocurrencies in the market. It influences the price of other cryptocurrencies through the volatility and demand created by the exchange trading. Cryptocurrency enthusiasts do not just trade. They also buy, hold and sell with their Bitcoins. When Bitcoin spikes in value, traders will shift their attention to other altcoins and prices will rise as a result. The more expensive the altcoin gets, the more people will trade their altcoins for Bitcoin. This process creates an extra demand for altcoins. As Bitcoin value continues to rise, its effect becomes even more strong. In fact, several altcoins rely on Bitcoin to get a big boost in value.

How do altcoins affect Bitcoin?

In addition, all of the altcoins are built on the same core technology or algorithm. By employing these same algorithms and techniques, it’s possible to turn a simple DHT (Distributed Hash Table) into a fully featured decentralized system. As a result, with Bitcoin’s price surge, there are more people willing to learn about and invest in the platform, which in turn, provides an easy entry for anyone to buy some Bitcoin for cheap. The other side of the coin is that since most altcoins can’t compete with Bitcoin in terms of technology or market efficiency, the constant comparison to the leading cryptocurrency impacts the altcoin’s price negatively. The altcoin market moves in order to move as close to Bitcoin’s price as possible, and that means that the tokens aren’t in a position to survive without Bitcoin.

Conclusion

Altcoin market values have a powerful influence on Bitcoin prices. When Bitcoin prices decline, investors dump altcoins for it. At the same time, when Bitcoin prices surge, the demand for altcoins increases. On the flip side, when Bitcoin goes down, the demand for altcoins increases. This is precisely why Bitcoin is often called the “tulip bubble” of the cryptocurrency space. During the last speculative run-up, the potential of new altcoins was limited because Bitcoin was still the undisputed king. Bitcoin has a unique selling point as a store of value and as an investment. That’s why it is able to have such a big influence on other cryptocurrency markets. Will Bitcoin’s dominance last for long?

Kiara Sofia Smith

My current focus is blockchain technology and cryptocurrency. One could even call me a blockchain “enthusiast.” I have worked for almost a decade on several financial projects related to the stock market news, fundamental research and technical analysis for several blogs.