Altcoins Follow the Leader

Sometimes we see major altcoins follow Bitcoin's price even when there is no reasonable explanation. Asking ourselves. "What's going on?!" In this article I will go over a few reasons and try my best as to explain why I believe altcoins follow Bitcoin. Please feel free to post your ideas/thoughts/comments down below. Let's start a conversation :)

BTC Trading Pairs

Every major exchange offers Bitcoin trading pairs (XXX/BTC), allowing you to trade BTC for altcoins. Some exchanges allow you to trade crypto for USDT( A crypto currency allegedly pegged to the U.S Dollar, Bittrex) or fiat such as Coinbase. Bitcoin is being traded the most for other altcoins in terms of volume, market cap, and popularity being at the center of the crypto-economy hence having some leverage behind it. Bitcoin has enough leverage to weigh down alts, over throw alts, and boost alts for countless reasons. Not to add that everyone doing technical analysis (TA) can see how even stagnation in BTC price can have a waterfall effect on the crypto-economy. Some altcoins have out performed BTC short term or during specific periods, however nothing has performed as consistently as Bitcoin. Most major Alts follow the same trend, some minor alts do as well. Some alt coins are "pumped" disturbing the pattern/trend, these alts tend to return to it's normal trend after a day or two.

The Bitcoin Standard

Bitcoin is King/Queen, and the altcoins are at best following it. How do you come up with a formula that prices these altcoins? Bitcoin is #1 thus decides the market price in general. This would imply that all other altcoins are kind of pointless other than short term investments. Which we all know is false, some of these altcoins have incredible technology such as Ethereum. Ethereum smart contracts allow multi signatures, management agreements between users, provide utility to other contracts, and even store information.

The Rotation of Cryptocurrency

Cryptocurrencies tend to follow a rotation, however when altcoins are not in rotation with Bitcoin prices tend to be cheaper. When altcoins are in rotation with Bitcoin they can provide much better gains if timed, some great examples would be the summer of 2017 May-June and December-January 2018. Altcoins were in rotation as this time, while BTC was hibernating. Other than catching altcoins in rotation finding the best time to invest in altcoins is nearly impossible, generally speaking Bitcoin will out run the altcoins due to their relationships. Cryptocurrencies tend to be pattern based when looking and volume and price. A common pattern is when a certain coin or type of coin become a popular commodity while other alts fall. High volume and and raid price increases tend to rotate as buyers and sellers rotate, generally being sparked by "good news" and ended by "bad news". Keep in mind "news"can often spark or smash a run. Finding the best altcoins to invest in can be hard. I don't want to stray away too much from the topic, but when looking for altcoins to invest in only invest in the technology behind the coin. If you believe the coin has a technology that can be utilized today or will create a positive impact on the world. Not all altcoins will be around in a couple of years, let alone a few months.

Exaggerated Dips?

Major alts don't follow BTC 100% of the time, but instead they tend to exaggerate dips. People tend to buy BTC when it goes up but the alt coins tend to go down in agreement, dips are exaggerated while spikes are not. Leading to altcoins not regaining highs, while BTC slowly builds momentum. Result: Bitcoin goes up, altcoins shortly follow after making a correction and shortly follow. However when Bitcoin falls altcoins tend to follow perfectly if not exaggerated. In the September crash Ethereum and Litecoin regained some value along with Bitcoin. Shortly after Bitcoin took off, draining some altcoins along the way. After Bitcoin's run Litecoin and Ethereum regained some value, followed by Bitcoin's all time high of $20,000 leaving altcoins in the dust. Shortly after altcoins took off providing some with better gains than Bitcoin did for others. If we see this pattern continue altcoins could gain little value when compared to Bitcoin. However I do not expect this pattern to continue , soon others will notice the value that other altcoins offer and will not follow BTC. Until then people will keep treating cryptocurrencies as speculative investments. I'm not trying to sound like an altcoin hater, I'm longterm bullish on most altcoins. Simply pointing out the obvious for short-term and mid-term.

Little In Common

All cryptocurrencies are listed on major exchanges. Just like Nike and Adidas being listed on major exchanges, both on clothing brands so how come they don't copy each other's price. I wouldn't expect them to. Ethereum, Litecoin, and even Ripple and not carbon copies of Bitcoin. They each have their pros and cons , Litecoin aside most altcoins have nothing in common with Bitcoin. So why are prices so closely correlated? Cryptocurrencies are an isolated ecosystem and a lot of price action is based off technical analysis and not fundamental analysis. Generally coming from people moving from coin to coin trying to grow their crypto bag. Bitcoin has been the clear winner as an investment, however nothing can diminish the usefulness of the technology behind the coin.

Conclusion

There is multiple theories as to whether why altcoins follow bitcoin or if they even do.
1.) Bitcoin has become the "gold standard" because the market is young.
2.) Democratic Market Psychology in a speculative market behaves more like a herd than expected.
3.) People are afraid of altcoins falling, switching to BTC causing a panic sell but not a panic buy.

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Disclaimer: I am not a financial advisor nor am I giving financial advice. I am sharing my biased opinion based off speculation. You should not take my opinion as financial advice. You should always do your research before making any investment. You should also understand the risks of investing. This is all speculative based investing.