What is Up With Altcoin Prices Following Bitcoin’s Price?
It can seem like no matter what happens, the major altcoin prices follow Bitcoin’s price, even when it is illogical. We ask, “why?!”
UPDATE FEBRUARY 2018: The article below was written in October 2017 when Bitcoin was outpacing alts after a market-wide correction. It was then updated in December 2017 right before Bitcoin stagnated and alts boomed. Now I’m adding notes late February 2018, a few weeks after a market-wide correction and during a time when Bitcoin is outpacing alts. Keep that in mind as you read. We could be entering a cycle like the one we were in when I wrote this originally!
UPDATE DECEMBER 2017: I’ve learned over time that the fact that every major exchange offers BTC trading pairs (where you can trade BTC for alts rather than alts for fiat or USDT) is the key to understanding why alts follow BTC. Because BTC is the top coin being traded for other alts in terms of market cap, volume, and general popularity, it is thus at the center of the crypto economy and has some gravity behind it (enough gravity to have an almost constant relationship with alt prices). I make that point below, but I want to stress it here as I underestimated the importance of it in the original article. The bottom line is that BTC can, for a myriad of reasons including the ones listed above, lift up alts, suppress alts, or depress alts. Add that to the fact that people have stops set in BTC and many bots trade in BTC, and add to that the effects of everyone doing TA and watching the alt/BTC charts for buy/sell signals, and you can see how changes in BTC’s price or even stagnation in BTC’s price can have a cascade effect on the crypto economy. Consider these points as you read the rest of these insights and theories from October 19th, 2017 below. For a more recent article on historical alt and bitcoin relationships see this article on the relation between BTC and alts.
DEVILS ADVOCATE [this was written when BTC was on a run and alts were stagnating in October 2017]: This page will argue that recently the only move for investors wanting profit now has been to buy BTC because other coins have at best poorly tracked BTC’s price making them sub-par investments compared to BTC at this time. However, one could argue BTC is now overbought, and Ether and Alts have very attractive price tags. Maybe Bitcoin Gold will end up being a joke, and everyone will jump to the top Alts? One needs to consider these sorts of things. This page presents ideas and discusses theories and insights; it does not offer investment advice. We recommend a conservative strategy of dollar cost averaging in major coins, not putting all your eggs in the Bitcoin basket based on any article you read including this one. The investing strategy you use is your call.
UPDATE DECEMBER 2017: Bitcoin Gold did just fine, make sure to be in BTC for the forks (consider the perks of the Binance crypto exchange and wallets that let you control your private keys). BTC is still a clear winner for long-term dollar cost averaging. Other coins have out-performed short-term or at specific entry points, however, thus far, nothing has performed as well as BTC consistently over time.
NOTE: Below we compare two major Alts (AKA Altcoins, coins that aren’t Bitcoin), Ether and Litecoin, to Bitcoin. Most other major alts follow the same trend. Some minor alts only do generally (but the correlation is less pronounced). The idea is to speculate and present theories to help you better understand cryptocurrency; it is not to offer you investment advice. UPDATE DECEMBER 2017: One reason it is less pronounced with other alts is that a few alts will be “pumped” (for valid and less-than-valid reasons on a given day), alts that are pumped tend to break the trend. They will usually resume following BTC within 24 – 48 hours after the volume increase dies down.
NOTE: There are some exceptional alts out there tech-wise; the Ethereum smart contract network for example. Even without the Ether token, Ethereum is “bad ass” as they say. This article will focus on values of investing coins over the course of months (based on what has happened since the summer primarily). Obviously, in the short term, anything could happen, and long-term some alts might breakout and take the lead. In fact, I think this is very likely if crypto can hold against its upcoming challenges. In other words, there is much to like about the major alts (top coins by market cap). With that disclaimer in mind, Bitcoin has been the clear winner so far.
“The Bitcoin Standard”: Bitcoin is the Pack Leader, but That Only Explains so Much
The simplest answer to the question of Bitcoin’s standing is, that “Bitcoin is king and queen, and the other coins are at best following it.”
It is hard to come up with a fundamental algorithm with which to price coins, so coin prices just follow Bitcoin as a sort of gold standard, “the Bitcoin Standard.”
It is the number one coin, and thus it is the coin that decides the market price in general.
Unfortunately, though, that answer suggests that all other coins are somewhat pointless as anything other than short-term investments (compared to Bitcoin).
UPDATE FEBRUARY 2018: One key here is that cryptocurrencies tend to follow a rotation. When alts are not in rotation, they are almost all sub-par compared to Bitcoin. When they are in rotation they tend to provide far bigger gains than Bitcoin if you can time them right. See May – June 2017 and December 2017 – January 2018. In these times alts were in rotation and BTC stagnated. Outside of these times alts are very tricky to invest in and generally Bitcoin will outpace them due to the relationship between Bitcoin and alts. Inside these times, when Bitcoin stagnates, altcoins heat up and heat up fast. Timing the market is next to impossible, but this is all worth keeping in mind.
They Don’t Just Follow Bitcoin Though, They Follow it in a Lackluster Way With Fewer Gains
If the above weren’t bad enough, it gets worse.
The major alts don’t follow BTC 100% of the time. Rather, they tend to exaggerate dips but not spikes.
That is, people tend to pull out of alts and go into BTC when BTC goes up, but all coins tend to go down in unison. If you do the math on that, it is not good.
This has led to altcoins not regaining highs as Bitcoin blew past its highs. The result is: when Bitcoin goes up the alts follow slowly (after going down and then lagging behind); And when Bitcoin goes down, the alts seem to follow perfectly or even exaggerate the decline.
After the early September crash, Litecoin and Ether picked up alongside Bitcoin, and all three regained some value. Then, Bitcoin sped off ahead of the pack (draining some value out of alts in the process). After that, Litecoin and Ether caught up a little (while Bitcoin Cash and some others either fell or picked up with Lite and Ether).
Then, Bitcoin went racing off for the moon and alts got left behind. Then alts picked up, but not back, and past highs like Bitcoin did. Then Bitcoin fell, and Alts fell with it starting October 17. Then, the same thing. Bitcoin got back to its high, but Litecoin and Ether have a ways to go to even see their pre-October 17 highs. Now, at mid-day Oct 20th, BTC is off past $6k, and Ether and Lite are dropping.
If this pattern keeps up over time, alts will see small gains and Bitcoin will blow past alts to the extent where investing in any crypto other than Bitcoin becomes absurd (compared to Bitcoin).
Now with that said, it is very likely this won’t keep up. That at some point people will realize that other coins have unique value and shouldn’t follow BTC around like an index that tracks the price of BTC. However, that time is not yet upon us, and for now, the whole thing is all a little lackluster (unless you are 100% in BTC).
I am not trying to be all doom and gloom here; in fact, I’m bullish on alts longterm. I’m just pointing out the obvious for the short and mid-term. That is, if alts can’t start standing on their own two bits in their trading price, they are going to become pointless as a medium-term investment over time (which might make them a more useful currency than BTC but has some negative implications).
NOTE FROM OCTOBER 2017: Since August of 2017, the best you can do with any coin other than Bitcoin has been to quickly jump in another coin for a quick profit if that coin lags when BTC rises. This would have worked wonders on October 12th for example if you bought Ether and Litecoin then and then sold again quickly. Sure, if you bought $225 Ether or $45 Litecoins in early September you are happy with the current prices. However, you are not as happy as if you bought a $3k Bitcoin and that is the point. Short-term trades have been fine, and long-term holds have been OK, but in the interim, compared to BTC, alts are lacking.
UPDATE FEBRUARY 2018: Again, this all changed when BTC went out of rotation and alts went into rotation in December 2017. This happened very quickly and it was hard to catch if you weren’t looking for the pattern to reemerge. If you see Bitcoin stagnate and a few alts like XRP and XLM start making constant and strong gains, this is a hint that the rotation is coming again. It is in these times that alts can break the trends noted on this page. Historically, it is really only in these times that alts break the trend. So although things could change, this is vital to keep in mind.
Please consider, Alts Have Very Little In Common With Bitcoin
The above would make sense if Ether were a Bitcoin copy, or if Litecoin didn’t have its own pros and cons, but coins like Ether, Litecoin, and say Ripple (just to add another interesting coin in here) are not carbon copies of Bitcoin.
Litecoin aside, most other alts have nothing to do with Bitcoin. Thus it begs the question of this page, “then why the heck is their price so closely connected?”
They are all cryptos, and they are all listed on major exchanges. However, Coke and Pepsi are listed on all major exchanges; they are both companies based on sodas, but they don’t exactly mirror each other’s prices every day. Nor would one expect them to.
UPDATE FEBRUARY 2018: Why would two coins have the same chart despite being so fundamentally different. One answer is because cryptocurrency is an isolated ecosystem and a lot of price action is based on technical indicators and not fundamental analysis. A lot of what you see is people jumping around from coin to coin trying to grow their BTC stack (or sometimes ETH stack)… so they can either 1. have more BTC or ETH or 2. cash out into fiat. Unfortunately, while coders and crypto fans will pin white-papers to their fridge and talk about PoS vs PoW, traders and their bots are focused on price trends and profits (not fundamentals like transaction speeds, fees, or tech). In terms of price trends and profits, from a purely technical perspective, BTC may as well be widget A, XRP widget B, TRX widget C, etc.
TIP: Above I’m speaking as a long-term investor in coins. As far as the usefulness of technology, nothing can diminish a great product like Ethereum. Likewise, Litecoin’s transaction speed is impressive. Ripple and other alts have positive aspects too. But Bitcoin has been the clear winner as an investment. Bitcoin’s history compared to alts since cryptos rise in 2017, but especially since the summer, makes all other coins look like a less sound investment. If you bought the major coins high on August 31st, you lost money on almost everything except Bitcoin. That right there is the proof that Bitcoin has been the only reasonable investment over the past few months.
NOTE: Bitcoin could be overbought, following the same logic above. However, it will almost certainly drag alts down with it in a crash. Thus, it is almost a moot point. It is like if Microsoft did poorly, so Apple crashed with it in perfect Unison; that would be unexpected. You would expect Apple to rise, or for Apple to take a slight hit, not for it follow Microsoft. You would not expect that with any other asset. It is strange that it happens to crypto.
Speculative Theories on Why AltCoins Follow Bitcoins Price
I have a few theories:
- It could be that all prices are based on Bitcoin as a gold standard because the market is young and that the days of “follow the BTC price” are going to end soon.
- One could speculate that given these events, true democratic free market psychology in a speculative market apparently behave very much like a herd. Way more than I would have expected.
- Perhaps, people are so nervous about the bottom falling out of coins that any change to BTC causes a panic when the price declines, but any spike causes everyone to rush to Bitcoin (especially when forks are on the horizon).
- Perhaps, someone(s) is meddling with the markets (for example by spoofing all major coins on major exchanges). This might possibly cause all the coins to fall in line and would explain why they are often in-line, but not always. I’ve seen the markets being spoofed, but it is unclear how much of the movement is natural and how much is spoofing.
Perhaps there is a magic leprechaun who lives inside the blockchain orchestrating everything. I’m not sure, which is why this page is speculation and theory and not hard fact.
Predictions on What Will Happen Next Based Purely on Past Events
What I am sure of though is, if the pattern continues then the following will happen (the following is pure speculation based on past events… which shouldn’t by all means directly affect future events aside from psychologically.
NOTE: This is a theory; it’s creative writing. I am not offering price projections on which you should base investments. We don’t do that on this site. This is a site about understanding cryptocurrency in all respects. Not a site for investing advice.
- BTC will probably make some gains; it already recovered from Oct 17th.
- Alts will lag for a minute.
- Alts will then shoot up around Oct 19th or 20th (assuming BTC doesn’t crash back before then).
- BTC will rise upwards to $6k throughout the week (reaching that point around the Bitcoin Gold fork on Oct 25th). NOTE: BTC popped up to $6k on Oct 20th. Thus, I may have under-estimated BTC. Let’s revise that to sub $7, with a specific projection of $6.4 (if BTC can hold $6k today).
- Alts will follow (but not to the extent that they regain September highs; or if they do regain them, they won’t go too far past them. Say $70 LTC and $260 Eth).
- Around $6k BTC will crash again to the low $4ks.
- LTC and ETH will be dragged down with BTC, but they will be much closer to their early September levels than BTC.
With that said, if all that occurs and LTC and ETH (and other major Alts) don’t exaggerate the crash, then it could eat into my theory and show that this absurd trend will break soon. If they do hit the above lows, with $45 LTC and $225 ETH while BTC goes to $4k or so, well then I’ll be personally tapering back on Alts and going heavy in BTC in my portfolio. As, while I think Ether is much cooler (because of the smart Contract Ethereum network and lack of a crazy battle of the forks), my wallet prefers making money.
Now, of course, I am happy to be proven wrong. Trust me; if we break the pattern, I’ll be writing about it. I’ll be excited to see Ether, Litecoin, Ripple, etc. stand on their own two bits and see Bitcoin live its own life without telegraphed spikes and crashes.
In the meantime. I’m going to invest conservatively at this point. And when I do invest, my portfolio will be heavy in Bitcoin.
Meanwhile, you should just do whatever it is you are doing and not take my opinions and speculation as investing advice.