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Why is Bitcoin Rising Faster Than Altcoins?

Bitcoin has had something of a wild ride since it stepped into the scene in 2009. From Bitcoin’s pizza-buying days, to defying naysayers, to touching the dizzying heights of $20,000. Bitcoin has come a long way. It has gone on to be not just the world’s most successful cryptocurrency but has also managed to make its way into the treasuries of international companies. Bitcoin’s idea was simple: a “peer-to-peer electronic cash system” that would allow users to transfer value directly to one another without the need for a third party. So why is such a simple idea out-competing all other cryptocurrencies?

Bitcoin

The Birth of Altcoins

The success of Bitcoin has inspired thousands of more cryptocurrencies – which are collectively known as altcoins. Altcoins, or at least a significant number of them, have made a strong showing for themselves. Most altcoins were created to address Bitcoin’s limitations, such as scalability and privacy issues. Others were created with mightier ambitions. For instance, Ethereum was created to power smart contracts and decentralized applications (DApps). Others, like Chainlink, want to connect blockchain with the real world.

At the time of writing, there are 7,594 altcoins, as per Coinmarketcap. And Bitcoin has not only remained at the top, but it also continues to outpace them considerably. This phenomenon is buoyed by several factors that we’ll look at in more detail. But first, let’s look at the ‘how’ side of things.

How is Bitcoin Rising Faster Than Altcoins? 

Bitcoin has maintained a commanding lead in the crypto market. To get a clearer picture of how, let’s examine the figures it is posting at the time of writing. First,  the crypto takes the lion’s share of the market at 63%, with a market cap of $280+ billion at the time of publication. It’s also trading at $15,290 – a particularly notable feat since that’s the first time it’s broken through the $15k barrier in two years. This puts it way out of the grip of Ethereum, its closest challenger, which is going for $450 and has a market cap of $51 billion, almost 6 times smaller than that of Bitcoin.

Another pointer to Bitcoin’s rise is the rate at which new investors are choosing the crypto over altcoins. Of special interest is institutional investors that are looking to it to counter-intuitively de-risk their portfolios. This October, Jack Dorsey’s  Square Inc. purchased $50 million worth of Bitcoin.

CFO Amrita Ahuja explained the play like this: “We believe that Bitcoin has the potential to be a more ubiquitous currency in the future. For a company that is building products based on a more inclusive future, this investment is a step on that journey.”

In the month prior, business intelligence company MicroStrategy Inc. splashed $175 million on the currency, bringing its total Bitcoin holdings to $425 million. Those are just a few of several institutional investors making a play at Bitcoin, with the trend expected to hold in the coming years.

Behind the Scenes 

Bitcoin’s current status as the crypto favorite is down to several factors, ranging from mere perception to weightier reasons such as being a safe-haven asset.  Let’s take a closer look below:

1.Digital Gold, Hedge Against Inflation

Bitcoin is widely perceived as a bulwark against inflation. Bitcoin’s supply is capped at 21 million, making it immune to supply manipulation and price dilution. This is in contrast with altcoins such as Ethereum, which has no supply limit. Other major altcoins like Ripple (XRP) and Tron (TRX) have a large supply pool of 100 billion. Bitcoin’s controlled and relatively small supply gives it an allure of rarity, even earning the “digital gold” moniker. The bottom line is, people are more likely to invest in a ‘rare’ crypto asset than one with an unlimited or copious supply.

For years, Bitcoin proponents have trumpeted on about it being a hedge against inflation. We’ve already seen Bitcoin come to the rescue in countries hit by hyperinflation, such as Venezuela and Zimbabwe. More recently, the Covid-19 pandemic has given rise to new Bitcoin converts as economies’ stimulus packages around the world spark inflation fears.

2. Security

To be fair, there’s always the threat of the hypothetical 51% attack looming over the Bitcoin network. But at this point, it’s just that – hypothetical. Throughout its existence, Bitcoin has proven exceptionally resilient against security breaches. And that resilience has been boarded up lately as the network’s hash rate increases. Hash rate is the amount of power miners expend to validate transactions. The higher the hash rate, the more secure the network is.

Altcoins with less hashing power haven’t had such luck. The Bitcoin Gold network was targeted in January in an attack that cost $70,000 worth of BTG. Another instance is when the Ethereum Classic network took three hits in August when an attacker reorganized 7,000 blocks on the blockchain. When Bitcoin stays above the fray of such security breaches, it increases investor confidence, propelling its rise.

3. Scalability Solutions

Bitcoin grappled with scalability right out the gate. On its own, Bitcoin can muster an average of just 7 transactions per second (TPS). This causes network congestion and high fees. To address this, developers have come up with various solutions. The most popular is perhaps the Lightning Network, which is now helping to ease network congestion and enhance scalability. With such solutions, the most popular blockchain network becomes even more so.

4. Head Start Advantage

This article would be remiss if we didn’t mention Bitcoin’s head start advantage. Let’s face it: most newcomers and complete novices aren’t going to rattle off a list of altcoins.  Outside of the crypto bubble, Bitcoin could as well as be synonymous with cryptocurrency. The point is this: Bitcoin has more name recognition, credibility, and industry clout than all altcoins. All indications point to that being the status quo for a long time.

Final Thoughts 

Bitcoin inspired an entire industry of cryptocurrencies. Today, there is rarely a week that passes before we hear of a new booming altcoin. But no matter how innovative or fresh, none have proven worthy of dislodging the pioneer cryptocurrency from the top. Not just that, Bitcoin continues to court new fans every day, keeping it ahead of the curve. At the moment, Bitcoin is at the apex of the crypto ecosystem, and judging by its current standing, that’s how it’s going to be for a while.

Author: Hope Mutie

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