Bitcoin Price Chart vs. Altcoin Charts: How Do They Correlate?

Given the fact that cryptocurrency is an active and, at times, very volatile market, it is essential for an investor to learn how various assets depend on one another. However, the most common and perhaps the oldest type of digital currency is Bitcoin. Hence, some of its movements in price make it act as a barometer of the whole market price. However, with the charts of altcoins being strongly linked to the chart of Bitcoin, the relationship is not always that clear cut. This article focuses on analyzing Bitcoin and altcoins and their interactions to reveal how they work in the whole market of digital currencies.

If one is interested in keeping track of one’s performance, then the Bitcoin price chart is important. This chart displays the current value of Bitcoin. It presents every change occurring in the price(s) of the virtual currency so that traders and investors are able to analyze the market condition, past performance and future predictability of Bitcoin. This chart presents the real-time value of Bitcoin and shows how the prices of the cryptocurrency vary in real time so that traders and investors can assess the potential of the Bitcoin market taking into consideration past performance. Users are then able to analyze the line chart within the Bitcoin market and therefore gain insight into the overall health of the market.

Understanding Bitcoin’s Dominance

The primary fact that can hardly be argued about in the sphere of bitcoins is that they occupy the dominant position in the market of cryptocurrencies. Being the first cryptocurrency, it served as a benchmark, often influencing the trend in the rest of the cryptocurrencies.

From the functionalities’ perspective, it has been likened to digital gold. This situation is evidenced by the Bitcoin Dominance Index which gives the proportion of Bitcoin market capitalization to the total market capitalization of all crypto assets. In the past, it has been observed that when Bitcoin’s DOM rises, it means that investors are shifting their funds from other altcoins to Bitcoin.

Now there are a few ways through which one can observe that Bitcoin and altcoins are related to each other. In general, during the movement of Bitcoin, in both directions, upward and downward, all altcoins are also affected. It happens since Bitcoin is regarded as the market’s standard for all cryptocurrency assets and its fluctuations dictate moods for the entire industry.

Correlation Patterns: Bitcoin vs. Altcoins

1. Positive Correlation During Bull Markets: In bull markets, where the prices are rising, especially that of Bitcoin, so are the altcoins’ prices in the market. This positive correlation tends to be due to higher investor confidence in the cryptocurrency market, for a higher Bitcoin price also tends to attract more investors to invest in the crypto market. Newcomers invest during these times because, although they begin with Bitcoin because of its familiarity, they switch to Alts in the hope of earning greater returns.

For instance, in 2017, when the ‘bull run’ started operating, the Bitcoin price was comparatively low, at about $1,000 at the start of the year, but rose to around $19,000 by December. This remarkable rise in the price of Bitcoin came with tremendous gains in altcoins, with others expanding their market capitalization significantly such as Ethereum, and Ripple. Bitcoin’s effect on the overall market is positive during the period of growth in the prices of cryptocurrencies, where it serves as a benchmark for up-and-coming coins.

2. Divergence in Bear Markets: However, in bear trends, conditions change and the Bitcoin/altcoins pairs may fail to forge a correlation or revert it. During bearish times, Investors dump their altcoins consequently dumping bitcoin or any other fiat currencies in favor of bitcoin. This flight to safety can make Bitcoin’s price somewhat choke on staging a decline or at least decline at a slower rate than altcoins.

One of the greatest disconnects in the crypto sphere happened during the 2018 bear market. Thus, after the maximum in December 2017, the Bitcoin price started to fall and the bearish trend continued during the whole of 2018. The idea is that during this period Bitcoin lost around 80% of its value, while the majority of altcoins plummeted much deeper and some of them lost their value more than 90%. This divergence pointed to the fact that though Bitcoins experienced fluctuations, these were far much less in comparison to the situation prevailing in altcoins when they were in a bear trend.

3. Altcoin Seasons: However, there are times referred to as ‘alt season’ when most altcoins are on the rise more than Bitcoins. These time frames are always when the altcoins are decoupled from the Bitcoin market and they rally regardless of what happens to Bitcoin.

Altcoin seasons are normally observed when Bitcoin has had a strong run up and its prices are now more or less stable. People who invested in Bitcoin can move to investing in other coins in an effort to earn more by investing in these small risky assets. At such times, Bitcoin seems to diverge with altcoins which may not follow the movements observed in the Bitcoin market.

Factors Influencing Correlation

There are various reasons that affect the relationship between Bitcoin and altcoins, which include The sentiments in the markets, the development of technology, the world economy, and its events. By being aware of these factors, an investor is in a position to forecast changes in the correlation and possibly change his/her approach.

Market Sentiment: It has also been seen that the relationship between the cryptocurrency investor sentiment and the association between Bitcoin and altcoins is quite important. This relationship is positive because good news or events concerning Bitcoin will affect the rest of the market in a positive manner especially when institutions or governments come out to support or regulate bitcoins. On the other hand, negative sentiment leads to a shift to the safe haven and this makes Bitcoin to dominate the market to the detriment of altcoins.

Technological Developments: Some altcoins can temporarily ‘decouple’ from Bitcoin based on the innovations and advances in technology inside those altcoins. For instance, DeFi and NFT trading have spurred Ethereum’s demand sometimes irrespective of Bitcoin’s price index.

Macroeconomic Trends: The change in Bitcoin and altcoins correlation might be affected by wider macroeconomic factors including inflation rate, interest rate and geopolitical factors. During the downturn, Bitcoin is considered “digital gold” meaning that investors flock to the asset, whereas altcoins could have significant price swings.

Conclusion: Educate Yourself on These Correlations

While moving within the context of the Bitcoin price chart, altcoin charts depend on specific elements to be in correlation or antithetical to each other. They may constantly change their positions in pairs. Altcoins, however, can have their upward trends when there is a technological breakthrough or when Bitcoin takes a slightly backward seat during a period of its technological surge.

Hence, to any new investors, it becomes important to learn about these correlations and possible reasons behind them to be able to make appropriate decisions within the cryptocurrency market. Thus, the Bitcoin price chart with an altcoin’s performance analysis may help investors to respond to the constantly changing environment of the cryptocurrency market.