As Bitcoin breaks $41,000 for the first time, should we expect altcoins to follow?
The few altcoin investors who HODLed through the “crypto winter” of 2018 (which caused most altcoins to lose up to 95% of their value) have all their remaining frostbite-ridden fingers crossed.
With a so-called “sea of green” of altcoin prices starting to splash across crypto indexes more frequently, their optimism is catching on — many believe that altcoins are due for a massive jump in 2021 after a horrible past three years.
Altcoins run the gamut when it comes to price correlation with BTC — sometimes they skyrocket in value with Bitcoin, sometimes their prices remain largely unaffected. Other times, in times of serious market upheaval, the value of altcoins tank twice as fast as that of Bitcoin’s. Are there any trends to discern from this?
Unfortunately, as is often the case with altcoins, expectations didn’t meet reality. At least not in 2020. However the first week of 2021’s price action, that has seen many altcoins more than double in value, leaves investors to dare to dream.
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BTC's 2020 Lift on Altcoins Applied to Only a Few Coins
For a while in 2017, many believed that Ethereum would be the first to flip Bitcoin. It never happened. Instead ETH continued to drop in value until early 2020.
There can be little doubt that a very strong Bitcoin eventually lifts up its closest pretenders to the throne.
Ripple's XRP has followed a trend similar to Ethereum's. The cryptocurrency reached a staggering all-time high of $3.84 on Jan. 4, 2018, before a prolonged freefall began that took it to under 12 cents over the last year.
Bitcoin's momentum does not always reflect the dynamics of the entire market, but rather mirrors the first-mover advantage the leading digital asset enjoys.
In most cases, Bitcoin’s bullish run is not in tandem with altcoins.
Ethereum Remains the Altcoin Gatekeeper
Previous bull markets have seen Bitcoin enjoy an uptrend before altcoins join the wave. Alternative cryptocurrencies followed after Bitcoin reached an all-time high or a peak. Between this ebb and flow stands innovative Ethereum, the unofficial crypto gatekeeper, on which the majority of ERC20 crypto projects, DeFi protocols and smart contracts reside. What happens to Bitcoin and Ethereum impacts altcoins, like suckerfish on a couple of whales.
This is a growing pattern that will likely continue to be repeated. Altcoins usually pull back during a Bitcoin bull run. It is only after big brother Bitcoin has stabilized and completed its rally that an altcoin uptrend kicks in.
Some deductions have been made by market analysts over time; however, they remain speculative. The Bitcoin rally has to consolidate and Ether’s price needs to break out before altcoins can see a sizable rally.
Ether's price is important because Ethereum is one of the most trusted cryptocurrencies aside from Bitcoin, and an important weather vane of pending price action. Ethereum claims its role in the space as the most trusted altcoin thanks to it essentially pioneering both the 2017 ICO boom and 2020’s rise of the fledgling decentralized finance (DeFi) industry.
Can Altcoins Lift BTC?
The majority of altcoins however, suffered big drops in value as Libra’s consortium of blue-chip partners represented established leaders in the very industries that altcoins had proclaimed they were disrupting.
Since then, Facebook's much-maligned stablecoin project has suffered from a vicious backlash from regulators, which caused it to rebrand to Diem.
It would appear that once altcoin pumps have run their course and claimed too much dominance from Bitcoin, the original cryptocurrency usually swiftly steps in to reclaim its throne.
Altcoins Shoot Themselves in the Foot
However, the story is very different for altcoins.
While there are good altcoins on the market, some of them are not as good, and others are just a disaster waiting to happen. Most projects from the 2017 ICO boom have failed, leaving investors reeling from financial losses. It has been estimated in fact that 85% of all ICOs were indeed scams. Investors who remained in the crypto industry may have decided to consolidate in the most trusted assets. Bitcoin is the obvious choice as the flag bearer for the virtual asset industry.
BTC's Lift on Altcoins: Hope for the Future
The early days of the crypto market saw retail investors pump the market. They invested in all kinds of altcoins, as long as they saw the opportunity for quick and runaway profits.
With the market enduring several cycles of booms and busts, institutional players are entering the fold. They are betting big on Bitcoin and less on altcoins. This keeps the momentum in Bitcoin's favor. It will be a while before BTC can truly lift altcoins.
Ethereum, seen as the silver to Bitcoin's gold, is the hope of the altcoin market. The start of bullish momentum for Ethereum could be the start of the so-called altcoin season. With Ethereum now firing on all decentralized systems, altcoins face the mammoth task of catching up and taking back some of Bitcoin's lion's share of the market.
In the meantime, altcoin investors have to figure out a simple question: Are you a crypto suckerfish or just a plain sucker?