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Cryptocurrencies

Why do altcoin prices mirror Bitcoin?

September 28, 2021
BY Paul Reid

We all know that Bitcoin is the grandaddy of crypto, but did you know that over 3,000 new crypto coin offerings have joined the digital currency family since 2009? While Bitcoin is likely far beyond the price expectations of many of the alternative coins, there is a connection between how they rise and fall. 

Let’s explore these reasons and speculate on whether you can use this knowledge to better forecast crypto price shifts.

Bitcoin gateway

To first get into crypto trading, you’ll need to use your local or fiat currency to fund an account. The gateway cryptocurrency is Bitcoin for many exchanges, which obviously drives Bitcoin prices up. This accounts for a small percentage of a Bitcoin rise, that rise can trigger other more influential price-driving mechanisms.

Once you have an exchange account with Bitcoin, you can trade and acquire altcoins. Most, if not all trading pairs are Bitcoin vs Altcoin, so when Bitcoin prices move, the altcoins are indirectly affected by the same forces.

Market capitalization

Bitcoin market cap still accounts for almost half of the combined crypto market cap. When you add that factor to the gateway, it’s clear why so many altcoin prices follow Bitcoin.

Crypto traders often forecast altcoin price moves based on Bitcoin, believing that a fast reaction to a Bitcoin rise can create an opportunity with a lagging altcoin.

See it, believe it

It is widely expected by traders that Bitcoin prices influence altcoins. Since many believe and expect this, they naturally assume that a Bitcoin rise will result in an altcoin rise, so they buy altcoins, which prompts a rise. Many algotrading scripts execute orders based on this phenomenon.

Trading altcoins

Altcoins are much more affordable, and as little as $100 dollars can fill your wallet nicely. If just one of those altcoins reaches 1% of Bitcoin’s success, many traders will hit millionaire status. Such a dream is very inviting, but it’s also a long shot. While unlikely, that doesn’t mean altcoins shouldn’t be considered.

Shifting between altcoins and Bitcoin at opportune moments can offer a steady earning, but it requires patience, experience, analysis, and nerves of steel… and, of course, there’s no guarantee.

As with any market speculation, balancing risk and reward can be tricky, so a strategy or set of rules is suggested to avoid emotional trading.

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