Bitcoin is the big bad granddaddy of virtual assets. It’s the first thing someone thinks of whenever they hear “cryptocurrency”, and for good reason; bitcoin’s influence is immense, it’s the most valuable crypto asset around, and it’s literally become a household name.
Yet there’s a downside to bitcoin’s cultural market saturation. The most prevalent issue is how bitcoin has become more than just a major virtual currency — it’s become a barometer for the market that affects the valuation of every single other cryptocurrency on the exchanges. Bitcoin simply has too much influence over crypto market valuations as a whole.
The Case Against Bitcoin’s Primacy
In some cases, the tendency for bitcoin to have such an influence on market valuations as a whole can be a boon for altcoin investors. A rising tide lifts all boats after all, and a bull market for bitcoin means the rest of the crypto marketplace trends up as well. Yet when the entire crypto market troughs because of a single instance of something that puts bitcoin at a disadvantage but shouldn’t logically interfere with the ability of other cryptocurrencies to increase in value, suddenly having your altcoin linked to bitcoin’s success isn’t such a great thing.
Why should bitcoin’s success and failure directly influence every other single cryptocurrency that’s traded on exchanges? For all of bitcoin’s market share, it functions vastly differently than other crypto assets. It’s not used to back ERC-20 tokens like Ether, award content creation like Steem, or distributed as a universal basic income program like Manna. Market conditions that impact a less well-known coin with a niche utility function don’t necessarily impact bitcoin’s valuation; why should it always be the other way around?
There are many in the cryptosphere who tire of bitcoin’s stranglehold on market valuation. In fact, Ripple CEO Brad Garlinghouse spoke in a recent interview with CNBC in late May 2018 about just such an end to the correlation between bitcoin’s value and the vast majority of other cryptocurrencies on the market, stating that despite this close correlation between market valuations the underlying technology for different blockchains is often highly distinguishable. The issue, Garlinghouse added, is that there is yet to be enough understanding of the different use cases for specific cryptocurrencies.
It’s the Speculation, Stupid
While Garlinghouse makes an excellent point about there being a lack of understanding about the different utilizations for different coins, he also claims that the true culprit here is the speculative market. The events of 2017’s 4th quarter provide lots of traction for this claim, considering how bitcoin’s high-water mark of close to $19,000 USD per coin in December of 2017 saw value plummet as low as nearly $6100 per coin in February of 2018.
During that time, the crypto market as a whole has followed bitcoin’s value trends very closely. Historical price charts for altcoins are eerily similar to bitcoin’s charts to the point where many are nearly identical, irrelevant of use case. Wild value swings precipitated by rampant market speculation have turned bitcoin — and threaten to turn every other crypto coin — into little more than day-traded commodities.
Alas, unless crypto investors learn the intrinsic differences between bitcoin and every other single cryptocurrency on the market, the influence bitcoin has on other coins’ valuation may be difficult to break. The solution, therefore, might lay not in finding ways to divorce bitcoin from the wider market in investors’ minds but instead changing how investors interact with bitcoin in the first place.
If You Can’t Un-Join ‘Em, Beat ‘Em
So how does one fight back against the undue influence bitcoin speculation has on the entirety of the cryptosphere? One perhaps unlikely solution may come from the US Securities and Exchange Commission. The SEC released a statement in March 2018 discussing its initial thoughts on whether cryptocurrencies need to be treated like securities, stating that there are plans to investigate the “potentially unlawful” nature of online platforms like cryptocurrency exchanges and digital wallet providers.
The potential of SEC involvement in the cryptosphere undoubtedly raises the alarm with cryptocurrency enthusiasts everywhere. Those who appreciate crypto’s decentralized, universal, and unregulated nature will likely resent the intrusion of a central authority into the world of blockchain-based virtual currency, but in this case regulation of online crypto exchanges may have a positive effect.
In this case, mounting pressure placed on the crypto world by the SEC’s plans to regulate may result in the formation of a private, independent cryptocurrency body to help self-regulate the exchange market sector as a whole. This would not only obviate the need for the SEC to step in — a dubious prospect to say the least — while also providing enough structure and oversight to curb some of the more wild speculative action that has contributed so negatively to overall market stability.
The Final Word
There are a number of paths ahead of us when it comes to divorcing bitcoin’s unwarranted influence over the value of every other crypto asset on the marketplace. First, things could continue as they are now, which would lead to more of the same. Secondly, investors could begin to learn to differentiate between different blockchains and cryptocurrency use cases, though the historically high level of speculation in the marketplace doesn’t provide much in the way of confidence in that outcome. Finally, an industry body, either public or private, may attempt — with varying levels of success — to rein in exchanges in an effort to stabilize the market.
At this point it is clear that something will have to happen sooner or later if the cryptocurrency sector is to remain more than just The Bitcoin Show. Investors need to view the market properly in order to begin helping positive evolution of the crypto industry is to grow, necessitating the need for advanced crypto trading strategies. However, there’s no telling which direction the market will take. Such uncertainty is obviously just as bad for market value as anything else, but in this case there’s truly nothing to be done but wait and see.
Author: Catherine Tims is a freelance writer. After receiving her Master’s degree in English Language and Linguistics at the University of Arizona, she taught writing to graduate students at the University of Illinois/Champaign-Urbana. She has her own writing business, Ivy League Content, and freelances full time for business clients who need highly-researched articles.