You've probably seen the loss of value of Bitcoin the last two days, and there's at least some possible reasons to why it's falling. But what about Ethereum and Litecoin? I use those two since they're traded on Coinbase at the moment. The three crypto currencies have followed each other's steps very closely. It's almost like they're tied to each other in some way, even though they're very different to those who understands them.
So, what's really happening here?
Let's look at it from a hypothetic perspective where Bitcoin actually do continue to drop. What's to come of those other currencies, then? Most people who know the technical stuff are able to rationally choose the best currency and know what makes it the best currency. But that's not the whole story. Sometimes, often even, the very best doesn't win but rather something else comes out on top.
The reason something wins and something else loses often have nothing at all to do with which one's the best, sometimes it's just pure luck. Luck in being in the right place at the right time and then it doesn't matter if the other one (crypto currency in this case) are vastly better and more thought through, it just can't get the momentum to reach the broader public that its competitor have.
The same things that makes a winner can also take it away, though.
Bitcoin was at the right place at the right time and won big. It's the largest crypto currency in existence currently and it even rivals whole states in value. It reached a critical point in its growth where enough people used it to make other people use it as well, creating an upward spiral of success. The other currencies didn't. Simple as that.
Bitcoin, the last month:
Ethereum, the last month:
Litecoin, the last month:
So, if there really isn't something special with Bitcoin except people's belief in it, what says it can't be replaced at any time with another crypto?
Well, nothing, really. Just as the tech companies that we now view as too big to fail may be taken down from the top if any competitor get enough momentum Bitcoin may be exchanged for another crypto that's somewhat similar.
Back to Etherum and Litecoin
I believe that the reason for those two currencies to roughly follow the path of Bitcoin have nothing to do with what they are (good alternatives to Bitcoin) and everything to do with people who don't know much about the technical stuff but rather likes investing in them. There seems to be some sort of belief or unbelief in cryptos that doesn't depend on the currency itself, but rather the the belief in the crypto currency system and that's what makes people go bananas over the China story currently. Otherwise we would've seen a surge in some of the other currencies when we see a fall in Bitcoin but that's not what's happening which means the current downward trend isn't specifically a Bitcoin problem but a larger one.
This would also mean that the same goes for when, i.e. Ethereum starts to rise again, Bitcoin and Litecoin will follow. In this case it's more important where they're traded than how they're traded. Those three currencies are easily accessible and traded on sites such as Coinbase and will therefore be traded in the same manner since they're all crypto currencies and enough investors don't know the difference but just want to be part of the game.
So, until people starts acting rationally and stops seeing different cryptos as one we're going to be seeing these events.