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As Bitcoin breaks $41,000 for the first time, should we expect altcoins to follow?

 

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The question on everyone’s lips with Bitcoin’s price clearing customs at Crypto La La Land and moving past $40,000 on Jan. 7, 2020 is (and by everyone we mean those who sold at $19,000)-when does the altcoin season begin?

All their remaining frostbite-ridden fingers are crossed by the few altcoin investors who HODLed through the “crypto winter” of 2018 (which caused most altcoins to lose up to 95% of their value).

With a so-called “green sea” of altcoin values beginning to splash more regularly through crypto indices, their optimism is catching on, many assume that after a miserable past three years, altcoins are due for a huge leap in 2021.

Anyone who has invested and traded for more than a few months in cryptocurrencies other than Bitcoin will be aware that the success of the so-called altcoin market is very closely linked to that of Bitcoin.

In terms of price correlation with BTC, Altcoins run the gamut; often they spike in value with Bitcoin, sometimes their values remain relatively unchanged. Most times, the value of altcoins crashes twice as fast as Bitcoin’s in times of extreme market upheaval. Are there any patterns from which to distinguish this?

BTC’s lift on altcoins can not be boiled down to a simple yes or no, and even the most basic conclusions are very difficult to verify. The price rise of Bitcoin is combined with huge amounts of trading that takes the spotlight away from alternative assets. Given Bitcoin’s current 69 percent dominance of the entire market by market capitalization, this is easy to see. With Bitcoin’s recent surge to a new all-time high, a side-show bull run for other cryptocurrencies was ultimately supposed to catalyze the bullish momentum.

Unfortunately, hopes did not match fact, as is always the case with altcoins. In 2020, at least not. Nevertheless, the price action of the first week of 2021, which has seen many altcoins more than double in value, leaves investors daring to dream.

BTC’s 2020 Lift on Altcoins Applied to Only a Few Coins

The price of Bitcoin ultimately broke its all-time high and the magical $20,000 mark in late December 2020, closing at $38,000 at the time of publishing. For Bitcoin last year, however, it was mostly a lonely ride, as though it soared, most altcoins did not. However, it is important to see that the leading altcoins, such as Ethereum, Litecoin and XRP (at least before its SEC woes crashed its price at one point), have had good gains compared to the U.S. To the pound.

Perhaps the most important rivalry in 2020 for Bitcoin vs. altcoin was that of BTC vs. yearn.finance (YFI), a radically new DeFi protocol that ultimately provided a so-called “flippening,” exceeding the price of Bitcoin by touching $40,000. This was largely because of the rapid growth of DeFi and the relatively limited overall supply of the project. Since then, Bitcoin has regained its top position, and although YFI still leads on his heels, BTC continues to retain its price lead.

Many felt for a while in 2017 that Ethereum will be the first to flip Bitcoin. It has never occurred. Instead, until early 2020, ETH continued to drop in value.

In 2020, Ethereum took a while to get moving, eventually gaining traction in the fourth quarter thanks to its historic launch of the Beacon Chain that kickstarted the migration to the widely awaited Ethereum 2.0, and crossing the $20,000 promised land with Bitcoin. Since then, with a skip and a hop, Ethereum has flown past $1,000 and is currently eyeing its 2017 all-time high price of $1,400.

There is no doubt that a very powerful Bitcoin would finally lift its closest pretenders to the throne.

A pattern close to Ethereum’s has preceded Ripple’s XRP. On Jan. 4, 2018, before a prolonged freefall started that brought it to under 12 cents over the past year, the cryptocurrency hit a staggering all-time high of $3.84.

Buoyed by the bull run by Bitcoin and the Spark token airdrop by Flare Networks in December 2020, XRP climbed to over 70 cents on Nov. 24 until a brief plateau hit by Bitcoin. As the market leader continued to appreciate, XRP’s price then started to fall, eventually crashing to under 25 cents under the weight of the SEC’s announcement that XRP was indeed a security. On Jan. 7, however, XRP was then up by 45 percent again.

The momentum of Bitcoin does not always reflect the dynamics of the entire industry, but rather mirrors the first-mover gain enjoyed by the leading digital asset.

In most ways, the bullish run of Bitcoin is not in line with altcoins.

Ethereum Remains the Altcoin Gatekeeper

Previous bull markets saw an uptrend in Bitcoin until altcoins entered the surge. After Bitcoin hit an all-time high or a peak, alternative cryptocurrencies followed. Innovative Ethereum, the unofficial crypto gatekeeper on which the bulk of ERC20 crypto ventures, DeFi protocols and smart contracts live, stands between this ebb and flow. What happens to Bitcoin and Ethereum affects a few whales with altcoins, such as suckerfish.

This is a rising trend that will possibly continue to be replicated. In general, Altcoins pull back during a Bitcoin bull run. It is only after Bitcoin’s big brother has stabilized and ended her rally that an altcoin uptrend kicks in.

Over time, some deductions have been made by market analysts; they remain speculative, however. The Bitcoin rally has to consolidate and before altcoins can see a sizable rally, Ether’s price needs to break out.

The price of Ether is relevant because, apart from Bitcoin, Ethereum is one of the most trusted cryptocurrencies, and a significant weather vane of pending price action. By effectively pioneering both the 2017 ICO boom and the emergence of the fledgling decentralized finance (DeFi) industry in 2020, Ethereum claims its place in space as the most trusted altcoin.

In order to increase the altcoin trading rate, the market for DeFi protocol tokens was instrumental. If the market for DeFi tokens takes a nosedive, however, the momentum will change in favor of Bitcoin.

Can Altcoins Lift BTC?

Short reply. Often not. Altcoin rarely improves Bitcoin. Bitcoin was seen as the biggest beneficiary who would see a spike in mainstream exposure to cryptocurrencies when Facebook launched its Libra project in mid-2019. Libra (now Diem) brought a great deal of attention to the crypto market, which, in turn, played in favor of Bitcoin, the highest-profile digital asset.

However, the majority of altcoins experienced significant drops in value as the blue-chip partner consortium of Libra served existing leaders in the very industries that altcoins had announced they were disrupting.

Since then, a violent backlash by regulators has suffered from Facebook’s much-maligned stablecoin project, forcing it as rebrand to Diem.

 

It would seem that the original cryptocurrency typically swiftly steps in to retake its throne after altcoin pumps have run their course and asserted so much dominance from Bitcoin.

Altcoins Shoot Themselves in the Foot

The BTC lift on altcoins has more to do with altcoins than Bitcoin, or lack thereof. Bitcoin serves as the crypto industry’s gold standard. Completely decentralized and liquid, the leading digital asset is eligible for trading on virtually every crypto exchange on the world. This builds trust among investors.

For altcoins, however, the tale is quite distinct.

Some of them are not as good, though there are good altcoins on the market, and others are just a catastrophe waiting to occur. The bulk of the ICO boom ventures in 2017 have failed, leaving investors suffering from financial losses. In fact, it has been estimated that 85% of all ICOs are actually scams. Investors who have stayed in the crypto industry may have selected the most trusted assets to consolidate. As the flag bearer for the virtual asset market, Bitcoin is the obvious choice.

Exit scams have now become synonymous with Altcoins. Bitconnect, which made off with more than $3 billion in investor capital, is a good example. It was a few years ago that the market might no longer be the wild west, but investors are shying away from shady altcoins. As investors pour their money into Bitcoin, this affects the wider Altcoin market. What leaves altcoins behind is the vote of confidence in Bitcoin.

Also, liquidity is a factor. Less common altcoins suffer from inadequate liquidity in the market, opening them up to market and price manipulation by larger investors (whales), resulting in extreme price volatility and an unlikely prospect of a potential 51% assault.

BTC’s Lift on Altcoins: Hope for the Future

Retail investors pumped up the market in the early days of the crypto market. As long as they saw the potential for fast and runaway gains, they invested in all sorts of altcoins.

With many cycles of booms and busts enduring in the market, institutional players are joining the fold. On Bitcoin, they bet big, and less on altcoins. In Bitcoin’s favor, this holds the momentum. It will be a while before altcoins can be completely lifted by BTC.

Ethereum, seen as the silver to the gold of Bitcoin, is the hope of the demand for altcoins. For Ethereum, the beginning of bullish momentum may be the beginning of the so-called altcoin season. Altcoins face the mammoth challenge of keeping up and taking back some of Bitcoin’s lion’s share of the business, with Ethereum already firing on all decentralized systems.

Altcoin investors, meanwhile, have a straightforward question to sort out: are you a crypto suckerfish or just a plain sucker?

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