Cryptocurrencies have become an asset class that provides investors with multiple investment opportunities. From volatility spikes to slow-moving assets and impulsive price movements, it offers unique opportunities for investors willing to take on the complexity of the market.
From over 20,000 cryptocurrency assets available today, Bitcoin remains the dominant player, influencing its value and the price of the overall altcoins. Their link and price movement interdependence raises an essential question for investors: why do altcoins follow Bitcoin’s movements, and how can investors leverage this relationship?
This post aims to explore the dynamic between Bitcoin and altcoins, why they are closely tied in their price action, and how platforms like Yieldfund use this correlation when trading efficiently.
Bitcoin’s market dominance
Bitcoin’s status as the first cryptocurrency, launched in 2009, grants it a unique position in the market. With a market cap of over 60% of the cryptocurrency market, Bitcoin is a benchmark for the entire asset class. When looking at the Bitcoin market’s stability and health, Bitcoin is the go-to asset for understanding price movement and trends.
When Bitcoin’s price rises sharply during a bull market, it generates widespread interest and draws more investors and additional capital to the general market. This includes altcoins since they run similarly or in tandem with Bitcoin. Similarly, downward price movements trigger a similar ripple reaction across the entire market during a bearish period.
Bitcoin as a reserve currency
Many crypto exchanges treat Bitcoin as the reserve currency of the digital asset market. Before stablecoins gained popularity, most altcoins were priced in Bitcoin – and still are. This relationship shows that Bitcoin was and still is one of the few gateways for investors seeking access to the crypto market.
At the same time, to interact with the general altcoin market, investors had first to acquire Bitcoin and now stablecoins – which serve as a prerequisite for altcoin transactions, tightening their interdependence.
Not only that but Bitcoin is also perceived to have more stability than other altcoins. Its high market capitalization makes it a “safe haven” or “digital gold.” More often than not, during periods of market uncertainty, investors seek refuge in Bitcoin rather than altcoins.
Relation between Bitcoin and Altcoins
The relationship between Bitcoin and altcoins can be seen as similar to that of gold and silver in the traditional investment market. While both have unique properties and potential for growth, they are also highly connected in market trends and performance.
Bitcoin and altcoins can run in sync, often showing a direct correlation in the crypto market. As Cryptoquant researchers also highlighted, a “unison” movement in crypto means there are signs of short-term stability.
The reverse is also true. In the past, when Altcoin correlation shifted to red, altcoins often outpaced Bitcoin, which frequently signaled an upcoming decline in BTC’s value.
Why altcoins depend on Bitcoin
The reasons for altcoins following Bitcoin’s movements can be broken down into a few key factors:
- Investor psychology
Bitcoin is seen as a trusted and reliable asset in a volatile landscape. When Bitcoin performs well, it builds investor confidence, which often spills over to altcoins as investors diversify into other opportunities.
- Liquidity and market entry
Bitcoin’s liquidity provides the easiest means for entering or exiting the crypto market. For many altcoins, their value is measured relative to Bitcoin, creating a direct dependence on Bitcoin’s performance.
- Historical correlation
A 2022 study by Gamze Sekeroglu demonstrated that Bitcoin has strong positive correlations with high-volume altcoins like Ethereum and Chainlink. When Bitcoin rises, these assets tend to follow suit, although exceptions such as stablecoins like Tether and Dai show weaker or negative correlations due to their distinct mechanisms.
Factors influencing bitcoin’s price on altcoins
- Innovation and technology
Bitcoin upgrades, such as those impacting transaction speed and security, often set benchmarks for the broader crypto ecosystem. Successful advancements in Bitcoin infrastructure could inspire bullish sentiment for altcoins as well.
- Regulatory changes
Government actions regarding Bitcoin, such as ETF approval, tax initiatives, and higher stablecoin regulation, create ripples throughout the crypto market. It helps influence investor behavior across more than just Bitcoin.
- Macroeconomic trends
Bitcoin’s role as “digital gold” makes it sensitive to macroeconomic factors like inflation and interest rate changes. These trends often extend their influence into the altcoin market, where investors seek alternative ways to manage their assets.
When altcoins break free from Bitcoin’s movements
While the trend of altcoins following Bitcoin dominates the market, some instances highlight the independence of certain altcoins. For example:
- Stablecoins: Stablecoins are pegged to fiat currencies and are not in sync with Bitcoin’s price. A 2022 study showed Stablecoins such as Tether and Dai have a negative correlation with Bitcoin.
- Project breakout: New protocol releases can enter price discovery after breaking the initial resistance. This happens as investors are driven by greed, and prices of some altcoins could run independently of Bitcoin based on unique value propositions or media interest.
- Alt seasons occur when altcoins outperform Bitcoin in growth. These periods are often driven by Bitcoin moving sideways, prompting investors to explore underperforming altcoins.
How Yieldfund capitalizes on bitcoin’s movements
For investors looking to take advantage of Bitcoin’s influence across the market while mitigating risks, Yieldfund offers an easy solution that could provide up to 60% annual returns. Our fully automated trading algorithm and risk management system is designed to capitalize on price volatility and maximize returns for traders.
Invest smarter with Yieldfund
Understanding the link and rapport between Bitcoin and altcoins is crucial for every investor who wants to top. By recognizing Bitcoin’s dominance and its impact on the broader market, investors could make better financial decisions during periods of bitcoin-altcoin sync or breakouts.
Yieldfund’s platforms help investors diversify their portfolios. With a platform offering stability and consistency, investors can earn 5% monthly returns with weekly payments without the hassle of tracking every market fluctuation.
Explore crypto investments with Yieldfund today.
