If One Falls, We All Fall. Why do Cryptos Depend on Each Other So Much?
Cryptocurrencies have stood the test of time. For more than a decade now, people have been using cryptos, a fast and secure method of payment not controlled by a central authority. People use cryptocurrencies for all sorts of purposes – for example, you can now play Bitcoin slot games online.
However, if one thing is certain, the value of various cryptocurrencies can fluctuate – and it’s highly volatile. This is why the crypto day trade and investment markets have boomed. Many people have made a lot of money with crypto investments, but many people have also lost their money on the flip side.
The main thing to note here is that cryptocurrencies are interconnected. If one crypto’s value goes up, most other cryptos’ values go up. And vice-versa. Why is this the case?
Bitcoin and Altcoins
Without a doubt, there’s one cryptocurrency towering above all others. This is Bitcoin. Created back in 2009 by the mysterious entity Satoshi Nakamoto (nobody knows if this is a real person or an organization), Bitcoin is the centerpiece of the burgeoning crypto scene. This is why the entire market is dichotomized as Bitcoin and Altcoins (short for “alternative coins”).
So, Bitcoin has paved the way for other cryptocurrencies to start appearing. As such, it’s the main cryptocurrency that people have in mind when they discuss the market. And as such, it bears the entire weight of the crypto world on its shoulders.
Many other cryptocurrencies act as outright copycats of Bitcoin. For example, the first altcoin on the market, Litecoin, was created using Bitcoin’s original code. The goal was to make transactions more convenient, safer, and faster. And many of these altcoins are Bitcoin copycats, so to say.
So, it goes without saying that if Bitcoin’s price fluctuates, then so too will the price of Litecoin and other copycats. These altcoins are, to an extent, tied to Bitcoin.
The Bitcoin Core
As the premier cryptocurrency, Bitcoin is one of the most well thought out, most well-crafted coins on the market. It’s also very safe to make Bitcoin deposits and withdrawals, as more than 18,000,000 “crypto miners” from all around the world guarantee and safeguard the veracity of the deposits.
Many of the other cryptocurrencies aren’t so expertly crafted as Bitcoin, which is one of the reasons they all fluctuate so dramatically and cannot reach the value of Bitcoin. But one thing’s for sure – if Bitcoin’s value takes a hit, then, to an extent, all cryptocurrencies take a hit. And vice-versa.
The Reserve Cryptocurrency
Did you know that the United States dollar (USD) is considered a reserve currency in stock markets? Well, pretty much the same system is applied in the world of cryptocurrencies. This time around, Bitcoin is regarded as the reserve cryptocurrency of choice:
- It was the first cryptocurrency ever;
- It is one of the best-designed cryptocurrencies;
All other cryptocurrencies are linked to Bitcoin in one way or another.
The fact that Bitcoin is considered a reserve cryptocurrency gives it an elevated status over all the altcoins – and it’s something to consider when you think about how cryptocurrencies are interconnected to one another.
Bitcoin is not Destiny
We’ve talked in the previous sections as if Bitcoin is the king of the world of cryptocurrencies. And, to an extent, it is. There are many reasons why this is the case. But the fact remains that while the altcoins are intrinsically tied to Bitcoin, every altcoin is unique in its own way and, to a certain extent, independent from others. You should have this in mind if you want to invest in cryptocurrencies or trade them to make profits.