Dominance and the Crash of Other Altcoins
Bitcoin dominance is a measure of the percentage of the total cryptocurrency market capitalization that is made up of Bitcoin. It is calculated by dividing the market capitalization of Bitcoin by the total market capitalization of all cryptocurrencies.
Bitcoin dominance has been on a downward trend since 2017, as the altcoin market has grown in popularity. However, when Bitcoin crashes, altcoins often crash even harder. This is because investors tend to sell their altcoins in order to buy Bitcoin, which is seen as a safer investment.
There are a few reasons why altcoins tend to crash harder than Bitcoin when Bitcoin crashes. First, altcoins are often more volatile than Bitcoin. This means that they are more likely to experience large price swings, both up and down. Second, altcoins are often seen as riskier investments than Bitcoin. This is because they are newer and less established, and they may not have the same level of liquidity as Bitcoin.
When Bitcoin crashes, it can create a panic in the altcoin market. This is because investors may fear that the entire cryptocurrency market is crashing, and they may sell their altcoins in order to cut their losses. This can lead to a self-fulfilling prophecy, as the selling pressure can cause altcoin prices to fall even further.
There are a few things that investors can do to protect themselves from the crash of other altcoins when Bitcoin crashes. First, they should diversify their portfolios by holding a mix of Bitcoin and altcoins. This will help to reduce their risk if one asset class crashes. Second, they should be aware of the risks associated with altcoins and invest only in those that they believe have strong fundamentals. Finally, they should be prepared to sell their altcoins if the market starts to crash.
Factors that can contribute to the crash of other altcoins when Bitcoin crashes:
- Fear of contagion: When Bitcoin crashes, it can create a fear of contagion in the altcoin market. This means that investors may fear that the entire cryptocurrency market is crashing, and they may sell their altcoins in order to cut their losses. This can lead to a self-fulfilling prophecy, as the selling pressure can cause altcoin prices to fall even further.
- Reduced liquidity: When Bitcoin crashes, it can also lead to reduced liquidity in the altcoin market. This means that it can be more difficult to buy and sell altcoins, and this can lead to further price declines.
- Technical factors: The crash of other altcoins when Bitcoin crashes can also be due to technical factors. For example, if Bitcoin falls below a key support level, it can trigger a sell-off in altcoins.
What can investors do to protect themselves from the crash of other altcoins when Bitcoin crashes?
There are a few things that investors can do to protect themselves from the crash of other altcoins when Bitcoin crashes:
- Diversify their portfolios: Investors should diversify their portfolios by holding a mix of Bitcoin and altcoins. This will help to reduce their risk if one asset class crashes.
- Invest in altcoins with strong fundamentals: Investors should invest in altcoins with strong fundamentals. This means that they should invest in altcoins that have a good team, a clear roadmap, and a strong community.
- Be prepared to sell: Investors should be prepared to sell their altcoins if the market starts to crash. This will help them to limit their losses.
Conclusion
The crash of other altcoins when Bitcoin crashes is a common phenomenon. There are a number of factors that can contribute to this, including fear of contagion, reduced liquidity, and technical factors. Investors can protect themselves from this risk by diversifying their portfolios, investing in altcoins with strong fundamentals, and being prepared to sell.
Source:
- https://www.google.com/amp/s/cryptopotato.com/bitcoin-dominance-rises-as-altcoins-suffer-double-digit-crash-market-watch/%3famp
- https://en.cryptonomist.ch/2022/01/22/increases-dominance-bitcoin-january/
