Bitcoin (BTC) is considered the most important and influential digital currency in the digital currency market, and it plays a pivotal role in determining the direction of the market in general. The relationship between the price of Bitcoin and the rise or fall in the prices of other digital currencies is explained as follows:
1. Bitcoin as a Market Indicator
Bitcoin is the first and most popular digital currency, and it constitutes a large percentage of the total market cap of digital currencies.
When the price of Bitcoin rises, it often attracts the interest of new investors and increases liquidity in the market, which leads to higher prices for many other cryptocurrencies (Altcoins).
Conversely, when Bitcoin falls, investors become fearful, which causes money to leave the market, and the price of other currencies falls.
2. Correlation
Most cryptocurrencies, especially those with a lower market cap (Altcoins), are strongly correlated with Bitcoin.
This correlation is due to Bitcoin's market dominance and being the currency against which most crypto pairs are traded.
3. Liquidity and trust
A rise in the price of Bitcoin is considered a positive sign of market confidence, which leads to capital flowing into altcoins.
When Bitcoin drops sharply, investor confidence declines, demand for altcoins decreases, and their prices fall.
4. Altcoin Season
Sometimes after long periods of Bitcoin stability or appreciation, investors start transferring their profits to altcoins, causing their prices to rise.
If Bitcoin is in a slump, altcoins may start to perform better.
5. Market cycles
During bull markets, a rise in Bitcoin has a positive multiplier effect on other cryptocurrencies.
In a bear market, it is observed that a decline in Bitcoin leads to a sharper decline in altcoins.
6. Trading Bitcoin as a Reference Currency
Most trading platforms use Bitcoin as a reference currency for trading with other cryptocurrencies.
Any change in the price of Bitcoin directly affects the value of these pairs.
In short
Bitcoin is the leader in the cryptocurrency market. Its rise usually attracts liquidity and raises the prices of altcoins, while its decline leads to liquidity flight and a decline in the market as a whole. However, this relationship can sometimes vary based on factors such as the development of new projects, regulatory decisions, or speculative waves.
