Debate: Please explain to me why...

[MrMomentum]

I would like to ask a very simple question to all you Bitcoin lovers out here.

"Explain to me, why it makes rational sense that the prices of most alt-coins (in relation to USD/EUR/Fiat) should become different when the price of Bitcoin changes."

Note that I am not asking why this happens at present. To put it a bit differently - if a regular dude with no knowledge of the crypto market would ask you:

Why is it sensible and/or "right" that the price of a given alt-coin asset valuation goes up and down when the price of Bitcoin (in most cases, a seemingly unrelated asset) moves up and down? How does the value of said alt-coin become more or less.. why does it make sense that the BTC price de-facto "decides" that whatever actual utility the alt-coin asset enables me to make use of (in-game currency, computing time, storage space, etc.) can now be had for a different amount than a few moments ago?

And, again, just to be sure - please refrain from 'arguments' along the lines of:

- It has always been thus
- Coz alt-coins are [enter your derogatory description here]


and so on. I want to know... why is this the right way for this market to function. How does it make rational, economic sense.

Thank you

[paxmao]

The price of bitcoin is related to supply and demand. The fact that it is limited and the demand has, at least for now, increased has driven up the price.

Regarding alt-coins each case is different. On one side, their price is linked to btc in many exchanges and they could be considered a close substitute for bitcoin as a product. Thus the theory predicts that if the difference in price grows to high, the investor would buy the alternative asset perceived as better value. You assumption of these being unrelated is obviously wrong.

As for the intrinsic value perceived for these alt-assets, each one is different: limited or unlimited supply, real use cases, community support, developers support... If I had to sum up in one word it would be credibility, of which bitcoin has the maximum as of today.

[MrMomentum]

The price of bitcoin is related to supply and demand. The fact that it is limited and the demand has, at least for now, increased has driven up the price.

Regarding alt-coins each case is different. On one side, their price is linked to btc in many exchanges and they could be considered a close substitute for bitcoin as a product. Thus the theory predicts that if the difference in price grows to high, the investor would buy the alternative asset perceived as better value. You assumption of these being unrelated is obviously wrong.

As for the intrinsic value perceived for these alt-assets, each one is different: limited or unlimited supply, real use cases, community support, developers support... If I had to sum up in one word it would be credibility, of which bitcoin has the maximum as of today.

Ok - you did not actually answer my question, but instead gave me a rundown of crypto basics and realities. I get those - I've been doing crypto for some time. I expected this would happen, this is why I was so explicit But let me try with a more elaborate example

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If I want to, say, store my files on a system like StorJ (just as an example, I am not particularly interested in them) - this would cost me some dollar amount, like, let's say, 200 dollars per year for a Terabyte. Now, to pay for that service, I need to get their tokens, let's define that as 200 tokens, at $1 each. I buy those tokens.

Now - a few moments later, BTC falls by 2%, and even though I have absolutely nothing to do with BTC, the StorJ service would continue to exist is BTC would disappear, my tokens now have a different value, like, I don't know. $ 0.97 instead of the $1 that I paid for them.

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All I want to know, and please, this is the only thing I am asking:

Why is it reasonable, rational or in any way "correct" that this has happened with my StorJ tokens?

What has the change in BTC price seemingly changed to the value of the service I can purchase for these tokens?

*I am using StorJ merely coz it is a known example and its function has clearly zero to do with BTC.

[NeuroticFish]

First of all, the rule has it's exceptions on every price fluctuation. It has happened that Bitcoin has fallen and certain altcoin was (still) rising.
But I think that Bitcoin price is a great indicator of the money flow in the crypto markets, especially as most altcoins can still be bought mainly only if you buy another coin first (which is usually Bitcoin).

So if investors decide to get out, they'll get out of altcoins and bitcoin too, hence the whole market will feel that.
And since the value of altcoin's in circulation is much smaller, they feel much heavier such a negative move.

If investors come in, it's a little different. Most will invest only in Bitcoin for being most known and for being advertised as less risky than altcoins.
Altcoins will receive funds later and in smaller amounts, but when that happens, again, since their value is not as big, they may get very nice growth.

And I'll come back to the fact most altcoins are bought by buying Bitcoin first. This imho makes imho unnatural to reference the altcoin price in USD and it should be in Bitcoin. Then you'd see the real fluctuations and may give you something close to an answer.

[LoyceV]

- It has always been thus

Historically, altcoins have often been traded against Bitcoin. And since (almost) all altcoins are created to make the creator rich, the ultimate goal is to get more Bitcoins.
Because of the lower market cap, altcoins often go up and down more than Bitcoin. When Bitcoin goes up, people sell it to buy more altcoins. And when Bitcoin goes down, the money from altcoins flows back into Bitcoin. It's a bit of a self-fulfilling prophecy.

Or a simpler answer: it's not crypto that goes up and down, it's fiat

[MrMomentum]

- It has always been thus

Historically, altcoins have often been traded against Bitcoin. And since (almost) all altcoins are created to make the creator rich, the ultimate goal is to get more Bitcoins.
Because of the lower market cap, altcoins often go up and down more than Bitcoin. When Bitcoin goes up, people sell it to buy more altcoins. And when Bitcoin goes down, the money from altcoins flows back into Bitcoin. It's a bit of a self-fulfilling prophecy.

Or a simpler answer: it's not crypto that goes up and down, it's fiat

Ok but back here in the real world and in the present, the vast majority of humans asses the value of a given service and whether it is a good deal or not in Fiat currencies. Now I am happy to agree this may not necessarily be the optimal solution and, yes, I know all the crypto-convert arguments why Fiat is also "made up" or a Ponzi scheme or [enter your pet theory here] and I can even follow the logic, but if I was to decide - hmm, should I invest in StorJ tokens, I will not be doing this on the basis of what BTC fundamentalists think the world should look like, but rather based on, you know, how it actually looks like, no offense

That there is some potential future world in which expressing the value of goods and services in Satoshis is going to be "the norm" and that such a world might actually be better - that's fine and I am not against believing this, but at the present moment telling 90%+ of people that something is "worth" 3453 Sats is virtually meaningless to them.

[LoyceV]

Ok but back here in the real world and in the present, the vast majority of humans asses the value of a given service and whether it is a good deal or not in Fiat currencies.

In that case: most stocks often swing up and down at the same time too, especially when they're in the same sector.

[MrMomentum]

First of all, the rule has it's exceptions on every price fluctuation. It has happened that Bitcoin has fallen and certain altcoin was (still) rising.
But I think that Bitcoin price is a great indicator of the money flow in the crypto markets, especially as most altcoins can still be bought mainly only if you buy another coin first (which is usually Bitcoin).

So if investors decide to get out, they'll get out of altcoins and bitcoin too, hence the whole market will feel that.
And since the value of altcoin's in circulation is much smaller, they feel much heavier such a negative move.

If investors come in, it's a little different. Most will invest only in Bitcoin for being most known and for being advertised as less risky than altcoins.
Altcoins will receive funds later and in smaller amounts, but when that happens, again, since their value is not as big, they may get very nice growth.

And I'll come back to the fact most altcoins are bought by buying Bitcoin first. This imho makes imho unnatural to reference the altcoin price in USD and it should be in Bitcoin. Then you'd see the real fluctuations and may give you something close to an answer.

Well - you are describing what the crypto market looks like, making a number of assumptions and value judgments in the process, some of which I am sure are reasonable. Of course the relationship with BTC is not 1-on-1 identical, but if you look at these graphs listed here: https://delistbitcoin.com/Evidence.html you will see that the vast majority of coins are pretty much Coin X-flavored BTC.

But again, you are describing what the historical situation is - not why it makes sense that it is thus. When the guys at Filecoin make a profit/loss overview, they calculate costs like hosting, staff salaries, bandwidth, insurance, etc. in US Dollars; But the value of the Filecoin token used to utilize their service is constantly shifting, in no small part due to BTC price moving, even though their service has nothing to do with BTC. Any impact by the BTC price on the Filecoin token, however small, has no merit - nothing about the Filecoin value proposition changes as a result of BTC becoming cheaper or more expensive.

Of course Crypto-general impacts such as, say, news about impending crypto regulation, etc - that this impacts all coins, that of course does make sense, and I also understand it is a novel and pioneering market with major fluctuations being fairly normal. What I do not understand is how anyone can expect the crypto space to be taken seriously if all alt-coins are basically BTC shadows.

[MrMomentum]

Ok but back here in the real world and in the present, the vast majority of humans asses the value of a given service and whether it is a good deal or not in Fiat currencies.

In that case: most stocks often swing up and down at the same time too.

Ok - would you think it normal that you can buy any Nasdaq share in fractions of Apple or Google share...? (Where Apple and Google are assumed to be BTC and ETH respectively for the sake of the argument ie the top 2 assets)...?

That when Apple would get sued for, say, exploding batteries and its share drops 5%, all Nasdaq shares also drop, by at least double that...? Would anyone think that is a functioning market? Coz that's the crypto market.

[NeuroticFish]

What I do not understand is how anyone can expect the crypto space to be taken seriously if all alt-coins are basically BTC shadows.

You seem to be overlooking exactly what I meant as answer. I'll try to broaden that.

They are not shadows, but most of their price fluctuation makes sense only if you look at it in price vs Bitcoin.
There are far too few coins that can be bought directly for fiat.
Most of the altcoins and tokens can be traded against Bitcoin and many day traders do this, making the coins look like depending on Bitcoin.
Most Bitcoiners also don't take altcoins serious. But it's altcoins' community who has to do something about it if they think they can do it, for example make their own exchanges where Bitcoin is not accepted and only their coins vs fiat will work. Then they'll break the chain and either go out of the shadow, either (more likely) disappear.

Is this a better answer?

[davis196]

What I do not understand is how anyone can expect the crypto space to be taken seriously if all alt-coins are basically BTC shadows.

You are right about this one.I can't take the cryptocurrency markets seriously,since almost all altcoins are tied to Bitcoin.
Maybe the problem is that we are comparing cryptocurrencies with stocks.
If you take a look in the stock market-one company produces shoes,other company is making pharmaceuticals,a third company is offering an online service.They have different businesses inside different industries.
In the cryptocurrency world,each coin serves the same purpose-to be a medium of exchange and a store of value.
This is like comparing a fruit&vegetables market that has all kinds of fruits and vegetables with an apple market,that has only apples-green apples,red apples,big and small apples,but only apples and nothing else.
To me,cryptocurrencies are like apples and stocks are like all the fruits and vegetables.
This is a pretty simplified explanation,but I kinda like it.

[Mauser]

I don't know if this the economic theory correct explanation but I can tell you how I look at the crypto market and each individual alt coin. Every country has their own currency which is usually traded freely on the forex, there are some special cases where this is not true but this is usually because the country is actively trading on the market to influence the price. USD is the world currency number one so most other currencies are quoted in USD terms. In my opinion the exact same goes for crypto currencies. You could say that each crypto coin is like the currency of a small country. The price moves freely and is not pegged to bitcoin or Usd.

[MrMomentum]

What I do not understand is how anyone can expect the crypto space to be taken seriously if all alt-coins are basically BTC shadows.

You seem to be overlooking exactly what I meant as answer. I'll try to broaden that.

They are not shadows, but most of their price fluctuation makes sense only if you look at it in price vs Bitcoin.
There are far too few coins that can be bought directly for fiat.
Most of the altcoins and tokens can be traded against Bitcoin and many day traders do this, making the coins look like depending on Bitcoin.
Most Bitcoiners also don't take altcoins serious. But it's altcoins' community who has to do something about it if they think they can do it, for example make their own exchanges where Bitcoin is not accepted and only their coins vs fiat will work. Then they'll break the chain and either go out of the shadow, either (more likely) disappear.

Is this a better answer?

Well - yes Though it is interesting you say make it look like it depends on Bitcoin because that actually is part of the problem
And I suppose I should have included stablecoins as de-facto equivalent of Fiat currencies, though I am no fan of USDT, to be clear.

Now - from a "BTC fundamentalist" point if view I perfectly understand the... not so flattering opinion about alt-coins, and given the amount of scams and crappy projects out there I can't say it is a surprising attitude, granted. But what I am concerned with primarily are "regular" folks that might want to invest in an alt-coin project because, well, they believe it to be a good project, and wish to buy the tokens that "run" the platform. Whether or not that is a wise investment is another story, but regardless of its merits, the price of BTC is not part of those merits in the majority of cases. Or, well, I am still waiting to hear a valid explanation why it would make sense that it actually is

See - by having this kind of market where BTC is basically the only game in town, I think it is reasonable to say that it makes the market as a whole into a mockery, and far harder to take seriously. There are quite a few "alt-coin" systems that actually are pretty good; maybe not in the eyes of BTC Believers, but certainly by, if you allow me to be so cheeky, more... "objective" standards In turn, this greatly delays that Satoshi-denominated future many of you wish would happen tomorrow. What's worse - it gives time to Central Banks to get with the program and devise their own crypto-similar systems and THAT, my dear fellows, is something we definitely don't want.

[MrMomentum]

I don't know if this the economic theory correct explanation but I can tell you how I look at the crypto market and each individual alt coin. Every country has their own currency which is usually traded freely on the forex, there are some special cases where this is not true but this is usually because the country is actively trading on the market to influence the price. USD is the world currency number one so most other currencies are quoted in USD terms. In my opinion the exact same goes for crypto currencies. You could say that each crypto coin is like the currency of a small country. The price moves freely and is not pegged to bitcoin or Usd.

That is indeed how it should be - the price moves freely and is not tied intimately to the US Dollar. I mean if the US economy will tank tomorrow because, say, it has been discovered that the GDP dropped by 10% due to COVID, then sure, many other currencies might also take a hit, though the impact would be far less than alt-coins take when there is some bad news about BTC.

I'd recommend opening two browser windows, open one, on, say, DOT, and the other on BTC, and just look how DOT is following every single BTC move for 90% of the time. Sure, if something awesome just happened in the DOT space and people are buying it like crazy it might escape BTC gravity for a while, but that happens quite rarely.

And so if DOT was a country, their whole economy would shrink 20% in value when BTC drops by, say, 8-12%, even though absolutely nothing has changed in DOTLand. The same factories are still making the same stuff, people working in them make the same amount of DOT, and a loaf of bread is still 0.034 DOT - yet, on the "global market" the DOT currency just lost a fifth of its value. For no discernable reason that can be blamed on the DOT economy...

[NeuroticFish]

Well - yes

Thank you.

but regardless of its merits, the price of BTC is not part of those merits in the majority of cases. Or, well, I am still waiting to hear a valid explanation why it would make sense that it actually is

It's the way the markets/exchange are done. That's all.
I'm not convinced that you can get a better answer, I'll keep an eye though  

There are quite a few "alt-coin" systems that actually are pretty good; maybe not in the eyes of BTC Believers

I am also "fond" of a few altcoins there and believe me, I've seen now and then (especially in my early beginning when I paid more attention to altcoins than Bitcoin) discussions for decoupling from Bitcoin. Nothing worthy has happened in that direction.

this greatly delays that Satoshi-denominated future you all wish would happen tomorrow.

There's a mistake here: Bitcoin "believers" and greedy "investors" (speculators) who can't wait to cash out are not the same thing.

What's worse - it gives time to Central Banks to get with the program and devise their own crypto-similar systems and THAT, my dear fellows, is something we definitely don't want.

Central banks are expected to compete with USDT, not with Bitcoin, actually.

[stompix]

If I want to, say, store my files on a system like StorJ (just as an example, I am not particularly interested in them) - this would cost me some dollar amount, like, let's say, 200 dollars per year for a Terabyte. Now, to pay for that service, I need to get their tokens, let's define that as 200 tokens, at $1 each. I buy those tokens.

Because storj or chia or enjin or cliliz or cosmos , none has actually shown to be of any utility outside trading and hosting some tokens on their chain.
None! And the guys holding those tokens are in 99% not interested in the actual utility if that ever comes true but the price of the coins when that becomes a reality.

And this brings us to the valuation part, if BTC goes down it means people are panicking we are entering another bear market and they know in such times most try to invest less and stick to the coins that are safer and not dependent on some unicorn dream project but overall value, so that's why altcoins usually come down faster than BTC. It's a matter of trust, if trust in BTC that is seen as the leader of the crypto world goes down it means something is going wrong at the base, so other coins are far more exposed, especially those that target a niche that might never embrace them.

What I do not understand is how anyone can expect the crypto space to be taken seriously if all alt-coins are basically BTC shadows.

&

But what I am concerned with primarily are "regular" folks that might want to invest in an alt-coin project because, well, they believe it to be a good project, and wish to buy the tokens that "run" the platform. Whether or not that is a wise investment is another story, but regardless of its merits, the price of BTC is not part of those merits in the majority of cases. Or, well, I am still waiting to hear a valid explanation why it would make sense that it actually is

I don't understand either how some altcoin lovers think that everything on this planet needs a token and a blockchain to function and every single coin out there will have a purpose. That's the problem, you're treating those altcoins as something more than gambling and investing when it has been proved over and over they are actually nothing more, their value is not related to their utility but to the market sentiment, and that's decided by BTC. Like any company, since those "projects" are anything but decentralized, its value should be low before it can actually deliver something, not priced in billions when all they have is a token and a whitepaper. If all the value came from the crypto hype, when the hype is gone so is the value.


 

[MrMomentum]

Ok - well, thank you all for your answers and comments so far, let me process this and I shall come back later with a few thoughts...

Just for the record let me perhaps state my objectives/position... I first heard of Bitcoin back in 2010-2011 and was immediately sold on the vision... I believe most people, even a substantial part of hardcore crypto-afficionados, do not actually understand what a total gamechanger crypto is for, well, everything really. The fact non-governments can now make a functional medium of exchange, a programmable one no less, is possibly more revolutionary than the invention of the wheel

But - I greatly resent the fact that, as NeuroticFish already alluded to, the crypto space is filled with speculators, scam artists and similar short-term gain seeking actors that give the entire space a bad name, and obscure or render irrelevant the more... "ideological" side of it. Though to be fair, I am unable to condemn such people because, well, what are you gonna do, seeking to enrich oneself is hardly a crime... but they do screw things up and pollute the narrative.

What I want to see is an evolved, more serious, transparent and more accessible crypto-eco-system (not just market, though of course that's a big part of it) so the world at large may gradually start seeing decentralized information and value exchange systems as a viable alternative for the rather outdated systems of governance and management that we have today. I believe that BTC dominance, both in terms of market share and "marketing"/mind-space is detrimental to the speed at which this can be achieved, though I am no BTC hater

At any rate- thanks and I'll be back soon with more whatabouterism

[LoyceV]

Ok - would you think it normal that you can buy any Nasdaq share in fractions of Apple or Google share...?

You can buy apples in oranges for all I care: as long as you find someone willing to sell it, it's possible.
For shares, it's more common to use fiat though, just like for virtually anything else on the planet you can buy.

[The Sceptical Chymist]

The price of bitcoin is related to supply and demand.

That was the first thing that came to my mind when considering the question--and there's really no other explanation.  Supply has a lot to do with an altcoin's price, which is why doge has never hit $1 and probably won't stay at $0.33 for long.  There's just too many coins on the market and insufficient demand to drive up the price any higher.  Then you have coins like bitcoin, Dash, and some others that "only" have 21 million or so coins that will ever be mined.  Demand affects their prices much more dramatically since there's generally fewer coins available on the market.

OP, supply and demand drive prices for pretty much everything.  That's why it's taught in every introductory economics course--it's a fundamental principle of how things get valued.

[Ucy]

Probably thesame  way the increase in the cost of transportation affects the price of important goods that are transported through public/private vehicles... And that could have ripple effect on the prices of other basic goods and services. The networks/systems are somehow interconnected. You can break away from this if you could somehow become fully independent of the networks, and probably use a better model others can find reliable and safe.