“Millions and millions of people are investing in cryptocurrencies because it is much cheaper and simpler than investing in stocks. I don’t think we fully understand the impact that cryptocurrencies have had.” –Mark Cuban
This statement alone speaks to the magnitude of the impact of cryptocurrencies and blockchain technology on the world today.
But what I think still needs to change is the common perception that bitcoin is the only reliable cryptocurrency people should invest in. As a cryptocurrency enthusiast and investor, I can’t help but highlight the potential of altcoins.
While bitcoin has long dominated the narrative, current market conditions suggest that altcoins are poised for a significant rise, making now an opportune time for investors like you and me to explore the vast potential of these alternative digital currencies.
All indicators show that a huge investment opportunity in altcoins is imminent, with the bitcoin bull cycle expected in 2024. It is therefore essential that small investors familiarize themselves at least a little with the potential of altcoins in order to increase their profits in the coming times.
Understand why altcoin prices follow bitcoin prices
From a historical perspective, there is a significant correlation between the performance of altcoins and that of bitcoin. Altcoin price trends appear to closely follow those of bitcoin.
This relationship can be attributed to several interconnected factors that shape the dynamics of the cryptocurrency market. Understanding these things will help you understand why altcoins tend to move in tandem with bitcoin:
Sentiment and Market Dominance
Bitcoin as a market indicator: Bitcoin, as the pioneer and most widely recognized cryptocurrency, acts as a market indicator. Traders and investors frequently look to bitcoin to gauge overall market sentiment.
Positive or negative movements in the price of bitcoin often influence the perception of the health of the entire cryptocurrency market.
Bitcoin Dominance: Bitcoin’s dominance in the cryptocurrency market in terms of market capitalization is significant. It typically hovers around 40-50%, indicating that bitcoin holds a substantial share of the total market value of all cryptocurrencies.
This is why changes in the price of bitcoin can have a profound impact on the valuation of the entire market, including altcoins.
Trading pairs and liquidity
Common Trading Pairs: On many cryptocurrency exchanges, altcoins are primarily traded for bitcoin rather than fiat currencies. Bitcoin serves as an intermediary currency in these trading pairs, influencing the valuation of the altcoin in terms of bitcoin. Traders often use bitcoin as a base currency to buy or sell altcoins.
Liquidity Impact: Bitcoin's high liquidity compared to many altcoins makes it a preferred choice for transactions. Traders often convert their holdings to bitcoin when market conditions are uncertain or to facilitate liquidity.
This behavior contributes to synchronous movements between bitcoin and altcoins.
Market perception and investor behavior
Psychological impact: Bitcoin price movements can have a psychological impact on the market in general. Significant rises or falls in the price of bitcoin can influence investor confidence and risk appetite, affecting their decisions across the entire spectrum of cryptocurrencies, including altcoins.
Herd mentality: Investors tend to follow market leaders, and bitcoin's dominance contributes to a herd mentality. When the price of bitcoin experiences a notable movement, it can trigger similar actions among altcoin investors.
This herding behavior amplifies the correlation between bitcoin and altcoins.
Infrastructure and Adoption
Limited number of Fiat-Altcoin pairs: Many exchanges have limited fiat-altcoin trading pairs, making bitcoin a common entry point for investors into the cryptocurrency market.
Traders often purchase bitcoins in fiat currency and then use them to acquire altcoins, which strengthens the link between bitcoin price and altcoin movements.
Unified ecosystem: The cryptocurrency ecosystem is interconnected, and developments in bitcoin often set the tone for the market as a whole.
Institutional adoption, regulatory developments and technological advancements regarding bitcoin can influence sentiment around altcoins.
Revealing the potential of altcoins beyond bitcoin
The appeal of bitcoin, the undisputed pioneer of the crypto industry, has undeniably cast a shadow over the myriad possibilities that altcoins hold.
These alternative digital currencies, born on the heels of the revolutionary success of bitcoin, have gradually matured, offering unique features and improvements to the decentralized concept.
Today we are witnessing the gradual emergence of what enthusiasts call “altcoin season,” a period marked by increased attention and potential gains in the altcoin space.
In the often confusing details of cryptocurrency investing, bitcoin has long been the go-to indicator of market sentiment, guiding the decisions of seasoned investors and speculators alike.
This relationship is often seen as a one-way street, where traders look at bitcoin movements before deciding on their altcoin positions. However, the dynamic is more nuanced than it seems.
Contrary to the perception of rigid dependence, sometimes a decline in the value of bitcoin serves as a catalyst for a surge in certain altcoins. Many investors, hungry for opportunity, are strategically shifting their capital from bitcoin to promising altcoins, fundamentally boosting their value.
This indicates a significant shift in the crypto landscape, challenging the idea that altcoins are invariably linked to the fate of bitcoin.
Altcoins: Riding the waves of bitcoin’s bullish cycles
If you evaluate the bitcoin market's historical bull cycles, you'll discover a fascinating pattern: a bitcoin price surge is often the precursor to an ensuing altcoin rally. We have seen this happen many times over the years.
This established correlation is very revealing when it comes to studying the relationship between the performance of bitcoin and that of altcoins.
However, the anticipation of an altcoin bull market that currently exists is the result of much more than just reading historical data. In recent years, we have seen cryptocurrency developers take a proactive stance when it comes to product design and distribution models, continually improving features and expanding use cases for their respective tokens.
This strategic and forward-thinking approach positions certain token projects as attractive, creating an environment that helps attract potential investors.
The growing popularity of memecoins in the market is a particularly significant indicator of a potential rise in altcoins. These cryptographic tokens, intimately linked to Internet culture, are characterized by financial meta-speculation which adds a unique dimension to their appeal.
The growing influence of memecoins is a clear indicator of changing investor sentiment and potential renewed interest in alternative digital assets.
When you think about all of this, you realize that this increasing diversification of the cryptocurrency market offers investors a nuanced landscape, underscoring the fact that the traditional narrative of altcoins only following the lead of bitcoin is transforming .
As developers innovate and adapt their tokens to meet specific demands and use cases, altcoins establish their identity beyond simple co-dependence on bitcoin's movements.
This is why observers believe that the cryptocurrency market is finally emerging from its nascent phase to become a truly diversified market. Investors now have a number of reasons to understand the importance of considering the dynamics of each token when making investment decisions.
Seize the opportunity: Now is the time to invest in altcoins
Let me summarize the arguments I made in the sections above to make a list of all the reasons why you should start considering investing in altcoins now rather than later.
In conclusion, the confluence of a wide range of factors that we briefly touched on above paints a compelling picture in favor of altcoin investing and a sense of urgency.
As an investor navigating the dynamic world of cryptocurrencies, now is the time to explore and invest in altcoins. Altcoin season is upon us, offering the potential for high gains and diversification beyond the confines of bitcoin.
About the Author
Martin Lunger is the CEO of R100K. He is a cryptocurrency investor and die-hard Bitcoin fan. Using his years of law enforcement experience and extensive study of the crypto landscape, Martin launched R100K to help Bitcoin enthusiasts like himself maximize their profits through a combination of human oversight and of AI cryptocurrency trading robots. R100K is focused on diversification and rebalancing.