A lot of people seem to misunderstand why cryptos share price movement with Bitcoin.

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Most of us know that when bitcoin moves, other cryptos move, sometimes identically.

I see many comments and posts each time it happens in an obvious way (usually accompanying a fast swing by BTC) calling it out and either asking why it occurs or attributing it to some organized manipulation. Even some well-intentioned commenters explain how there is increased confidence in the markets during a bitcoin surge and so investors jump in alts at the same time. The same can be said about a sudden fall, where bitcoin loses value suddenly and all the alts follow suite.

When I first started in crypto, I’ll admit it confused me too. But now it makes sense and hopefully it will to you too.

Alts are markets inside markets. Bitcoin is nested in the fiat market and alts are nested in the Bitcoin market. In order to understand why cryptos rise and fall with bitcoin, you need to stop thinking of alts directly in fiat value, that’s too many steps. This isn’t like stocks where everything is traded against the USD. This is crypto, where everything is traded against other crypto and the reserve currency is Bitcoin. As the largest share of trading pairs, BTC is the market stabilizer in the same sort of way that the USD is the reserve currency in the global market. Yes we have stable coins, but they don’t dominate the market like the bitcoin pairs.

When we compare the value of two cryptos we can forget that we are actually looking at their value in yet a third currency. You may be only looking at two coins but you are including a third trading pair of fiat. Instead, keep it simple and consider only two assets, one trading pair, at a time. During a shared price movement, look at the value of your coin and it’s movements in its value in bitcoin and you’ll see an accurate market value of your coin within crypto. The magic of the price of all coins moving in harmony falls away. If there is a significant change against BTC, you at least have a proper baseline for seeing true movement of your coins divergence from the baseline within crypto. Now you can introduce the fiat market into consideration if you want. It is the tertiary market in this trio.

Let’s make a quick oversimplified example to drive the point home:

If I were to buy shares in the American company Apple, which is valued in USD, and then the USD somehow suddenly rose 3% in value, would I be surprised that both the USD and the apple stock I own both increased 3% when I lookup the value in Euros? Of course not. Apple is still worth the exact same USD as before. Now since the Euro is smaller you may say the Euro fell 3% instead. It’s all relative but the point is the dollar moved and Apple stock did not, unless you care about Apple’s value in terms of a third asset. In crypto, fiat is the third asset.

TLDR: Matryoshka dolls & Relativity

submitted by /u/Justalurker8535
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