Bitcoin, which experienced a 20 percent price drop from $2,500 to $1,900, actually had a relatively decent day.
Ripple experienced a massive short-term decline in market cap, after seeing a staggering $10 billion decrease within a week. In a seven-day period, Ripple’s market cap plunged from $17 billion to $6.2 billion. On May 27, Ripple also experienced a nearly 50 percent drop in price, triggering concerns from investors in Japan and South Korea, where the majority of Ripple’s trading volume is concentrated in.
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Other prominent blockchain networks and cryptocurrencies such as Ethereum, Litecoin, Ethereum Classic and NEM have also seen a sharp drop in market cap, as the entire cryptocurrency market crashed overnight.
Dependence of Altcoin Price on Bitcoin
Ryan Selkis, former BitGo executive, previously stated that bitcoin has become a conservative investment for cryptocurrency investors. An increasing number of traders and investors have begun to eye ICO tokens and other cryptocurrencies such as Ethereum and NEM that often demonstrate higher returns and larger fluctuations.
“I don’t know when it happened, but at some point it became relatively conservative to invest in bitcoin, which is mind-blowing,” noted Selkis.
However, it is also important to consider the dependence of altcoins on bitcoin and the network effect it presents over the cryptocurrency market. Often, as seen on May 27, significant drop in the price of bitcoin leads to the decline of other altcoins. In most cases, altcoins suffer deeper declines in market cap and price in contrast to bitcoin.
Today for instance, bitcoin saw a 20 percent decline in price while altcoins such as Ripple, NEM, Stellar Lumens and Golem experienced nearly a 50 percent decline in market cap. After dipping below $1,900, bitcoin price has already recovered beyond $2,050. Meanwhile, the majority of altcoins are struggling to recover and regain momentum.
Bitcoin has also regained its 50% dominance over the cryptocurrency market, which it failed to secure over the past few months, primarily due to the strong rally of Ethereum and Ripple.
Unexpectedly, the majority of investors within the cryptocurrency market believes that bitcoin will not be the dominant blockchain after the market matures. Even successful billionaire early-stage investors such as Fred Wilson have previously stated that bitcoin will not be the dominant blockchain. At the Techonomy NYC event, Wilson stated:
“Bitcoin probably will not be the dominant public blockchain.”
Yet, bitcoin’s dominance and influence over other altcoins have been evident on today’s decline of the cryptocurrency market. Furthermore, bitcoin accounts for over 50 percent of most altcoins’ trading volumes. In other words, the BTC/altcoin pair is usually the largest trading pair for all altcoins including Ripple and Ethereum.
Casual traders and small-scale investors follow mainstream and influential figures such as Fred Wilson for investment advice and outlook on bitcoin. The truth is, most of these experts outside of the cryptocurrency market and industry have been inaccurate in predicting future events. Wilson previously stated that a fork was imminent and that Open Bazaar was going to be the killer app of bitcoin. None of the two predictions turned out to be correct.
Investors should take away two important lessons from today’s altcoin or cryptocurrency market decline: altcoins investors turn back to bitcoin in times of instability and uncertainty and bitcoin often recovers from short-term decline caused by bubbles and major corrections.
Featured image from Shutterstock.