Why do altcoins fall when Bitcoin rises?
Markets move as people’s sentiment changes
Let’s start with the first question, why does the crypto market move in cycles? These cycles aren’t unique to crypto; all markets seem to move that way. However, precisely pinpointing what causes these moves is often hard to do. There are almost uncountable factors that influence the prices; how is the economy doing? Is there uncertainty? What are the central banks doing?
These, and many more factors, will influence what the majority of the investors are willing to pay for something. For example, if there is uncertainty about the future because of a financial crisis, many investors will want to own some gold as a store of value, resulting in gold rising in value. With Bitcoins decentralized characteristics and transparency, the cryptocurrency has become competition for gold as a store of value. The inflation figures are increasing, leading to uncertainty, and thus we see Bitcoin reaching new heights!
Interestingly, we can analyze certain aspects of the sentiment that exists among crypto investors. For example, the Fear and Greed Index shows us if investors are greedy or fear among them. This index bases its conclusion on several factors, such as volatility, social media analyses, and Google Trends data. When the prices drop, investors may become more fearful, selling more, causing a further decline. When investors become greedy, the opposite happens with rising prices as a result. Just like the prices, fear and greed move in cycles as well.
Why does Bitcoin (BTC) rise while altcoins dump?
Now, you may have noticed that while Bitcoin is rising, altcoins often bleed. This is because investors active in crypto likely trade more than one cryptocurrency, and as Bitcoin increases in value, it often attracts altcoin holders to jump on the Bitcoin wave. This then leads to altcoin prices decreasing as the demand for them gets lower while Bitcoin increases. After a rally, Bitcoin then consolidates, after which investors often move back into altcoins, creating altcoins to rise in value while Bitcoin starts ranging.
Many trading bots in the BOTS app make use of these cycles between altcoins and Bitcoin. By trading in BTC pairs, for example, trading bots can increase BTC positions by getting in and out of altcoins positions in time. In addition, some trading bots aim to increase their position in altcoins by trading against Bitcoin or other altcoins. To find out more, check out the BOTS app, and see for yourself how they perform!