Bitcoin and Altcoins are major components of the crypto sphere. Bitcoin is currently the most precious digital asset in the system. Altcoin refers to all cryptocurrencies other than Bitcoin, and thousands of altcoins are available in the market. The crypto sphere constantly changes and digital asset value varies since it is based on multiple market components. Bitcoin and altcoins follow some similar patterns, but one is more volatile than the other.
In the cryptocurrency arena, altcoins are more volatile than Bitcoin. Lower market liquidity, market sentiments, regulatory changes, and other factors induce their volatility. This article demonstrates why altcoins have higher volatility than Bitcoin.
What are Bitcoin and Altcoin?
Bitcoin doesn’t need a special introduction; we are all familiar with it and how it has been ruling the entire digital asset market since its redemption. Bitcoin has reached a $100K value recently and is still the largest and most valuable digital currency in the market. It was launched in 2008 by an anonymous group or individual called Satoshi Nakamoto. Satoshi stated that he had been working on a new electronic cash system that was fully peer-to-peer, with no trusted third party. This is marked as the origin of Bitcoin.
Altcoins are commonly referred to as all cryptocurrencies except Bitcoin. Altcoins are created from the forks of another blockchain. Most of the altcoins are forked from either Bitcoin or Ethereum. The first altcoin was Litecoin, which was introduced in 2011. Altcoins are generally used to accomplish something within the respective blockchain networks. Altcoins usually aim to improve the limitations of cryptocurrencies and the blockchain networks they are competing with.
Why Altcoins are more volatile than Bitcoin?
Volatility is the measurement of how much the price of a particular asset has moved up or down over some time. The volatility determines the potential risk of that particular asset. According to market statistics, the more volatile an asset is, the riskier the investment becomes. Crypto is considered a highly volatile asset in the market. Crypto assets or coins show extreme volatility by fluctuating its value upwards and downwards within shorter time periods.
We have discussed the characteristics of Bitcoin and altcoins, now let us look at why altcoins are more volatile than Bitcoin. Altcoins are more volatile than Bitcoins, this is due to several reasons like lower market liquidity, less capitalization, higher sensitivity to market sentiment, regulatory changes, etc.
Lower market liquidity and capitalization
Altcoins generally have lower liquidity and market capitalization than Bitcoin. This makes altcoins sensitive to larger trades. Bitcoin has significant and enhanced market liquidity. This balanced liquidity will enable Bitcoin transactions to be processed without having a notable impact on its price. This will make Bitcoin much more stable and less volatile in the market. Altcoins generally have lower and imbalanced liquidity, so there will be significant impacts on their price when transactions and activities are initiated with them. Altcoins with their limited liquidity will emboss the sharp price movements and reflect their high volatility and potential risk.
Market sentiment
Altcoins tend to react and respond intensely to market changes and sentiment. Positive news and negative news can impact the price of altcoins. The price of it will be downward if there is any negative market trend, the price will surge once the market is filled with positive sentiment. This enhanced affinity of altcoin toward market sentiment exposes its extremely volatile nature. Bitcoin has a much more enhanced balance toward market sentiment. Market sentiment will affect Bitcoin’s price, but it will be less intense. Bitcoins have a special endurance to the market sentiment which altcoins don’t possess.
Market stability
Bitcoin is much more stable than altcoins. Bitcoin has been an active participant in the market, but altcoins are something kind of new to the arena. This extended presence of BTC has gained a stable and secure position in the market. The market stability will affect the volatility of both Bitcoin and altcoins. Altcoins are still in the early stages of development and have less adoption than Bitcoin. These factors make altcoins more vulnerable to abrupt price movements.
Technological implications
Altcoins leverage cutting-edge features and technologies. Latest services like advanced smart contract technologies and innovative scalability solutions are present in altcoin’s functioning. These technologies can boost its value and growth, but at the same time, it also introduces volatility in the market. The success and failure of these technology adaptations will seriously affect the price and lead to higher volatility. Bitcoin is much more stable and it does not try to add more cutting-edge technologies into its functioning. This eliminates the possibility of experiments in the network.
These are the major factors that differentiate the volatility of Bitcoin and altcoin. Altcoins are generally more volatile than Bitcoin. The lower liquidity and market capitalization are the prime reasons for this huge difference in volatility, along with those two, market sentiment, stability, and technology integration, all have significant impacts.
The Bottom Line
The question of why altcoins are more volatile than Bitcoin cannot be answered that simply. The volatility of a particular digital asset is dependent upon multiple factors. The key factors that differentiate Bitcoin’s and altcoin’s volatility are market cap and liquidity. These two bring the major difference and reveal their volatility. Volatility is an unavoidable thing in the crypto sphere, the demand and need for Bitcoin and altcoin never diminishes even though Both of them are volatile and uncertain in the market.
