Why do altcoins rise and fall in tandem with Bitcoin's price, and how is the price determined?
Various altcoins that played a role in the cryptocurrency boom alongside Bitcoin.
Although they are still priced in Bitcoin now, they are affected by Bitcoin price fluctuations, but in the future they may become mainstream independently of Bitcoin.
Here, we will consider the potential of altcoins by touching on exchanges and other points.
What is an Altcoin
Altcoin is the abbreviation Alt for Alternative Coin, the first three letters, with vowels added in a Japanese-style manner, and
it represents all virtual currencies other than Bitcoin as coins that can replace Bitcoin.
In Japan, famous altcoins include representatives such as
- Ethereum
- Bitcoin Cash
- Litecoin
- Ripple
- NEM
and Monacoin, which originated in Japan, is also well known.
How Altcoin Prices Are Determined
Altcoin prices are determined in conjunction with Bitcoin’s price.
The reason is that most altcoins are traded with Bitcoin as the base.
Furthermore, when using Bitcoin, contracts and systems required for interbank transfers are also unnecessary, allowing transfers to any destination.
Therefore, all around the world, cryptocurrency exchanges conduct altcoin trading denominated in Bitcoin (BTC-based) to enable efficient trading.
The Behind-the-Scenes of Altcoin Trading
Even if you purchase altcoins on an exchange with fiat currency, it does not mean you are directly purchasing altcoins.
Within the exchange, first fiat currency is used to buy Bitcoin from users, and that Bitcoin is then used to buy altcoins.
In other words, when you buy altcoins, Bitcoin is being bought and sold in the background simultaneously.
Therefore, altcoins are linked to Bitcoin’s price.
However, not all altcoin prices fully reflect Bitcoin’s price.
This is because the share of Bitcoin-denominated value varies by altcoin.
Thus, the degree to which an altcoin tracks Bitcoin differs depending on its individual Bitcoin-denominated share.
What Are the Yen Prices and Volatility of Altcoins?
For yen-denominated prices of altcoins, Bitcoin’s yen price is reflected as is.
In other words, as follows.
Altcoin yen price = Bitcoin yen price × Altcoin Bitcoin pair price (example: 0.001 BTC)
The volatility of altcoins is somewhat influenced by market sentiment, but is heavily affected by the proportion traded in Bitcoin, so it turns out as follows.
Altcoin price volatility = Bitcoin-denominated proportion within the altcoin × Bitcoin price volatility (how much Bitcoin’s price rose or fell by a certain percent)
Will Altcoin Correlation with Bitcoin Continue in the Future?
As for the correlation between altcoins and Bitcoin, currently centralized exchanges are predominant.
A centralized exchange is one where an administrator exists, and cryptocurrency trading is conducted through the operator’s servers, such as BitFlyer and Zaif.
In contrast, there are decentralized exchanges (DEL).
In decentralized exchanges, there is no administrator, and altcoins can be directly exchanged without intermediation by Bitcoin.
If such decentralized exchanges become more widespread than centralized exchanges, the linkage with Bitcoin’s price may no longer hold.
