An event you’ve likely already seen is the trend of altcoins dropping across the board when Bitcoin goes on a huge uptrend or downtrend. Many have found this scary or confusing, as they’re all different coins that come with different benefits, blockchains, and markets. When it comes down to it, though, there are patterns that have been seen for years now, and understanding them is important for grasping the relationships and keeping emotion out of the trade.
Bitcoin is the Main Blockchain
Bitcoin is the king of cryptocurrencies. When people need in or out of any altcoin, Bitcoin is the one they usually go through. As a result, there is a lot of money backing it and it sees much larger swings than most others do after accounting for volume and liquidity. The mindset that is often seen is one like this: “If Bitcoin is going down, I can sell and rebuy when it’s lower, earning a profit!” At the same time, people will often sell their BTC when it’s shooting up, waiting on a correction to buy back in again (like we saw soon after it hit $10k). It’s a normal situation now, but it will slow down as the market cap continues to grow.
But what does this have to do with altcoins? Traders will frequently dump their alts as soon as possible so they can get into the BTC train before it’s too late. In the process of massive dumping, the prices of those alts tank. Some will bounce back, while others may not, and there is always a degree of risk, so don’t assume that they are always worth buying into when they’re considered low. For those that do go back to where they started, it could take weeks or months, so it’s never a short-term decision.
Essentially, the idea here is that the more volatile Bitcoin becomes, the more red we’re likely to see across the altcoins. While this isn’t necessarily going to be true every time (and there are some random outliers), it’s something we can almost count on now due to the speculative nature of it all.
When Bitcoin Steadies, Altcoins Follow
After Bitcoin starts to steady in pricing, altcoins will usually normalize. Most who dumped their altcoins are doing it more for the BTC train than anything else, so they will return to the alt of their choice. This is usually seen when it’s green across the board, though there will still be outliers. But again, this happening most of the time doesn’t necessarily mean that it will happen every time, with all altcoins, or that they will bounce back to their original prices (keep in mind that green just means it went up… by how much will differ).
How Should This be Approached?
The point of this is to help demonstrate that just because a coin you’re following does something, that doesn’t necessarily mean that it represents actual interest or disinterest in it. The markets become very erratic when Bitcoin becomes volatile, and that ends up being seen in most of the altcoins. Between that and straight-up manipulation, it’s very hard to tell where a specific coin is going to go, so the general idea is that you shouldn’t really try to time the market. While some investors have made a great deal of money doing so, the number of people who have lost a lot is much greater. At the end of the day, it’s important to follow the potential value of a coin, rather than the current value, and ignore the ups and downs over short periods. Even outside of these huge fluctuations, there are going to be small ones pretty much all day/night. And above all else, never risk more than you can afford to lose if you do get involved – some coins with a bright future have crumbled to the ground in the past, and it’s always worth keeping in mind that none of them are truly immune, despite what some try to claim.