Md Roshan Aslam
How Bitcoin’s developments and trends impact the broader crypto ecosystem. This is an interesting question upper most in the minds of those who want to know more about this new form of digital asset.
Introduced by Satoshi Nakamoto in 2009, Bitcoin opened up a new asset class for global investors. Cryptocurrencies soon became the talk of the town, and BTC became the largest cryptocurrency out there. With a robust monopoly on the crypto domain, BTC holds a considerable influence on the broader market, particularly on the altcoins. It has become highly responsible for ripple effects on the prices of altcoins, and thus investor capital, a result of its highly fluctuating movements and dynamic trends.
In the last decade and a half, Bitcoin’s rallies have resulted in upward trends in several altcoins. Similarly, Bitcoin halving events or price falls have adversely impacted the crypto domain. These impactful events have established BTC as an enabler of the broader cryptocurrency domain, aligned with its status as the largest virtual digital asset (VDA) by market capitalization in existence.
How dominant is Bitcoin?
Similar to conventional sectors, Bitcoin holds a position of market leadership in the crypto domain through its gigantic market capitalization. This aspect has translated to its significant market penetration and adoption rate globally. As its price appreciated over the years, investors from all corners of the world have entered the domain, ranging from retail to large institutionalized investors. This has contributed considerably towards establishing a comparatively stable market than before with sustainable growth points.
For example, when Bitcoin registered its all-time high level of over $69,000 in December 2021. As a result, the overall crypto market propelled over the stratosphere with renewed interest by investors in Altcoins. Large altcoins like Ethereum surged to all-time high levels as well ($4,800+). However, the subsequent market crash took Bitcoin down by almost 30% to $47,686, while ETH fell around 23% to the $3,700 level. This fluctuation highlighted the dominating impact of Bitcoin as a market leader in the global crypto market.
Furthermore, BTC’s blockchain technology has successfully established benchmarks in the crypto domain in the last decade and a half while bringing the concept of decentralised digital currency to life. This concept has been used extensively to establish other altcoins and NFTs, subtly impacting the entire domain.
How has BTC impacted the crypto valuations?
From being worth a few cents to reaching its all-time high levels in less than two decades to becoming the largest cryptocurrency currently out there, BTC rallies have significantly impacted the valuation of altcoins. As discussed before, BTC fluctuations have often led to investors gaining confidence in the overall psychology of the crypto market, increasing investments and vice versa. Even in the consolidation phase in 2024, Bitcoin’s price fall has been replicated in several altcoins. Similarly, the introduction of BTC ETFs resulted in a price hike across the cryptocurrency market as a result of renewed interest in Bitcoins.
How does Bitcoin influence the crypto market?
To begin with, Bitcoin being the largest and oldest cryptocurrency is often synonymous with the broader market sentiment in the domain. Economic or regulatory changes that impact the price dynamics of Bitcoin often influence other altcoins. Additionally, favourable news surrounding bitcoin creates euphoria among investors, resulting in bullish rallies for itself and the overall crypto market. In fact, many altcoins have direct and indirect links with Bitcoin’s blockchain network and technological development in it directly translates to improved investor sentiment.
Furthermore, BTC is often used by short-term traders and long-term investors to balance their portfolios against higher-risk associated altcoins. They utilise the market capitalization of BTC as a balancing tool against unforeseen risks and volatility. Similar to blue chip equities, BTC acts like a market stabiliser against high-risk altcoins that come with a considerably riskier outlook.
Future considerations
With a global emphasis on establishing a regulatory outlook on the crypto market, especially on Bitcoin, the impact of BTC on altcoins is expected to go through a significant change. However, as more decentralised NFTs flood the crypto domain, the correlation between BTC and altcoins is expected to rise significantly in the upcoming years. Experts predict a probable shift in market dynamics outlook between BTC and the altcoins.
This will also be critical in terms of the adaptability of cryptocurrencies as a new asset class, and may possibly transform investor confidence and engagement. Additionally, economic trends worldwide are also expected to increasingly impact Bitcoin in the future, thus influencing the price action of altcoins in various ways. This will give rise to new behavioural correlation between these two, and technological innovation is expected to drive the growth of both.
(Roshan Aslam is co-founder & CEO of GoSats)
