The world of cryptocurrency is a volatile arena in which anything can happen at any time. The value of the coins can soar as high as they can fall. All these depend on a variety of external factors, may it be political reasons or due to any changes in the value of the other cryptocurrencies.
Speaking of Altcoins, a trend of them falling faster than Bitcoin has been noticed for quite some time now. Without further ado, let us take a quick look at 10 reasons explaining why the value of altcoins is falling faster than Bitcoins.
1. Decision on approval of ETF
Towards the end of 2020, the decision on the approval of the cryptocurrency ETF by the U.S. Securities and Exchange underwent a delay which got the crypto space hyped up on how the new changes would affect their coins.
The decision that finally came about in August affected the majority of the digital currencies. The effects were long-lasting and a major impact was seen on Ethereum as well as altcoins.
2. Bitcoin holding higher stability than Altcoin
Bitcoin is a euphemism of stability when it comes to investors in the cryptocurrency arena. This fact has been known by regular investors for a long time and hence every decision they make is strategically compared with how Bitcoin is performing.
Even though Bitcoin does show the risk of facing heavy volatility, investors prefer to invest in Bitcoin than small cryptocurrencies. In fact, if the price falls, they tend to move their funds from smaller cryptocurrencies like altcoin to Bitcoin.
3. Geopolitical conflicts
The geopolitical situation has a strong influence on various cryptocurrencies. One of the best examples to explain this point would be by taking into consideration the events that took place in Turkey in 2020.
The civil unrest in Turkey resulted in the value of the Turkish Lira falling tremendously. Due to this reason, many individuals placed their funds in Bitcoin for the safety of their funds. In short, the people in Turkey chose Bitcoin over their fiat currency. Thus, people were choosing Bitcoin over other smaller coins such as the Altcoins.
4. Overselling due to uncertainty
With the pandemic still taking a toll on the world, the uncertainty that it brings along with it has left investors highly alert and ready to take an action whenever anything seems to be going down south.
Anytime there seems to be volatility, the investors tend to oversell their assets. This results in the value falling. It has been noticed that more altcoins are sold than compared to Bitcoin which is why Bitcoin stands at a slightly better position when such a scenario occurs.
5. Draining the cryptocurrency market
Bitcoin has been the don of the cryptocurrency market for quite some time. What happens to Bitcoin, tends to affect the rest of the contenders in the market as well.
At the beginning of 2021, the Bitcoin price was hitting highs like never before. Due to this new record that it set, it ended up draining the cryptocurrency market massively. Due to this reason, the market was in support of Bitcoin while a pullback was faced by altcoin.
6. The fall of Ether
Ethereum is another cryptocurrency that has an effect on other coins. Many states that the momentum of altcoins in the altcoin market is led by how well Ether functions.
Towards the beginning of 2021, Ether faced a steep fall. Due to this sudden steep fall, Bitcoin benefitted.
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7. Both Bitcoin and Altcoin belong to the same program
If one is well-read on the technical aspect of cryptocurrencies, they would be aware that the program used to create Altcoins is the same as Bitcoin. Hence the chance of falling is quite high.
The reasoning behind the previously mentioned statement is that Altcoins are not independent of Bitcoins. The miners that Altcoins need for their network are provided to them by Bitcoin.
8. Similar blockchain
All cryptocurrencies need a blockchain to rely on to function. The blockchain used by altcoins and Bitcoin isn’t the same but very identical to each other.
In simpler terms, a few of the basic Bitcoin rules are used to create altcoins. This means that altcoins cannot survive on their own. Thus, altcoins tend to fall faster than Bitcoin.
9. Catch-up risk faced by Altcoins
A common trend that altcoin is known to have been facing over the past few months is a catchup risk. For those of you who aren’t aware of what it means, let us break it to you.
In scenarios where the value of Bitcoin drops, the value of Altcoin will drop twice the amount it did for Bitcoin. This is clear enough to indicate the reasoning behind why altcoins are falling faster than Bitcoin.
10. Bitcoins Bull Run
The bull run of Bitcoin is one of the major reasons why the price of altcoin drops. Bitcoin is known for trendsetting with all the other coins aping what Bitcoin does.
A trend that has been observed time and again with regard to altcoins and Bitcoins is that when a bull run occurs with respect to Bitcoin, the value of altcoins falls tremendously.
This means that investors take their money out of altcoins and put it in Bitcoin. After things go back to normal, people start investing back in Altcoin after Bitcoin settles down.
Summing It Up
With so many individuals becoming new investors as well as old investors bettering their investment game, knowing the reasons behind why changes, such as the price of altcoin dropping when compared to Bitcoin is important to be aware of while investing.
We hope the above-mentioned tips shine some light on why the value of altcoins is falling faster than Bitcoins and would help aid you better in your next cryptocurrency investment.