How Bitcoin Price Fluctuations in 2017 Influenced Altcoins

20/02/2018

Review by the team kript.io
Today we are going to analyze price driving factors in cryptocurrency market and Bitcoin exchange rate fluctuations influence on the rate of other cryptocurrencies. To get more precise results, we compared the rollercoaster price of Bitcoin in 2017 with TOP 10 altcoins such as Ethereum, Ripple, Bitcoin Cash, Cardano, Stellar, Litecoin, NEO, NEM, EOS, and IOTA. Here's what we got.
Market Overview
Let's start with the factors that influence exchange rate on the cryptocurrency market. During 2017, it flourished significantly with the market cap growth from $18.3 billion at the beginning of January to $610.1 billion. 24 hours trade volume increased as much as 205 times: from $162.5 million at the beginning of the year to $33.4 billion by the end of 2017.
If we compare the charts of total cryptocurrency market cap with Bitcoin in 2017, we can notice that general trends are similar, though the total market chart looks smoother than the Bitcoin chart.
Factors Determining Prime Cost
First off we should separate mined coins from the tokens issued by companies. The prime cost of the mined coins consists of the following factors:
electricity costs and mining difficulty level;
investment into mining farms;
commissions on transactions.

N.B. The higher the listed factors, the higher the coin prime cost.

As for the tokens issued by the companies, it is always up to the companies to define the initial price of the tokens for an ICO.
Factors Influencing the Exchange Rate
Some factors influencing the price in the cryptocurrency market are similar to those in the traditional market, though there is still a lot of difference. First of all, in the crypto world, the major factor of the exchange rate is hype that shows interests of masses. Moreover, fluctuations in the cryptocurrency market are much stronger than in the traditional stock market. The number of the price driving factors is quite big, here's the main of them:

Supply and demand. Most cryptocurrencies have limited supply. This deflation model increases their value comparing to fiat money the issue of which is not limited and is regulated by the governments. In some cases, part of the coins is burned, and that can drive the cost up.

The utility of the currency. That is one of the critical factors that influence the demand and, therefore, the price of the coins. The more cryptocurrencies are easy to use, store, and exchange, the bigger the demand. Many new opportunities for buying, selling, and storing digital coins have appeared in 2017.

Speculation. Actions of big investors and heavy speculators often determine the price move.

Mass Media. Economic news can have a dramatic effect on public perceptions of cryptocurrencies and, thus, on exchange rates. This effect can be either positive or negative.

Project news. Announcements of important upcoming events such as platform launch, strategic partnership, new fork, etc. can change the coin price drastically.

Confidence in traditional systems. If the level of confidence in traditional financial systems increases, people are more inclined to store their assets in fiat currencies and vice versa.

Legal/Governmental issues. These are mostly the news of crypto market regulation in different countries, exchanges events, etc. which drive the prices up and down.
Bitcoin Fluctuations in 2017 in Comparison with TOP 10 Altcoins
Bitcoin is a digital gold for most of the "crypto people." That is the first and the most popular cryptocurrency with around 37% crypto market share at the end of 2017. Therefore, Bitcoin exchange rate fluctuations can have a significant effect on other altcoins. But the scale of influence differs depending on the type of altcoin. If we compare Bitcoin and Ethereum charts for 2017, we can see that the trends for these currencies are not much similar and there is quite a difference. During the 1st half of the year, ETH price rise was stronger than BTC. Within the period from March 11 to June 14 ETH, the price grew up 18 times. For the same period, BTC grew up just 2.2 times. The situation changed starting from August when BTC/USD began growing faster than ETH/USD. So in the 2nd half of the year, BTC demonstrated more considerable growth. In total, BTC price has been rising about 13 times, and ETH – 88 times during 2017.

Exchange rate reactions to Bitcoin fluctuations are the most proportional for Litecoin.
The strong upward trend in December 2017 was relevant to all the main digital coins with a little difference in dates. Yet, BTC and altcoins correlation in downward trends was less evident.

The maximums fixed in 2017:
Bitcoin – December 17.
NEO – December 18.
Litecoin and EOS – December 19.
Bitcoin Cash and IOTA - December 20.
Ethereum - December 21.
NEM, – December 25.
Ripple, Cardano, Stellar – December 31.

The driving force of Bitcoin in this period is quite clear – within several days from the maximum for Bitcoin other currencies from the TOP 10 also reached their peak.
Summary
All in all, there are a lot of factors influencing the cryptocurrency market. We can spot some correlation between Bitcoin and other altcoins rate fluctuations where Bitcoin specifies the direction to general price movement. Though this correlation is not absolute. The main price driving factor is mass perceptions — cryptocurrency has value since many people consider it to be valuable. The bigger the hype, the more people eager to invest in digital money. And what is the major hype now? You know the answer.

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