Almost every alt trades primarily or exclusively against BTC – and it doesn’t do them any favours.
As the first cryptocurrency, bitcoin occupies a special place in the crypto ecosystem. It’s still the biggest crypto by an order of magnitude (at the time of writing, bitcoin has a $14 billion market cap, whereas Ethereum at #2 has a market cap of $665 million – a 20-fold difference – and most alts are at least one or two orders of magnitude smaller than that).
Bitcoin’s size and pre-eminence brings a couple of notable properties. Its trading volumes are similarly orders-of-magnitude higher than other coins. And, significantly, it trades against fiat currencies – mainly USD and CNY. Whilst the alts are occasionally supported by fiat exchanges, they generally trade against BTC.
The reasons are pretty simple. Dealing with fiat comes with the headache of additional regulation, whilst there’s a still very much a ‘what goes on in crypto stays in crypto’ mentality. Exchanges can do a thriving business collecting trading fees in bitcoin, which has high enough liquidity and stability that it still functions as a useful enough form of money for them to pay bills.
But it doesn’t do the alts themselves many favours. Those who hold them will be well aware of the market’s dynamics. Namely, when BTC enters bull mode, as it has recently, the alts take a pounding because traders sell them so they can profit from bitcoin’s rise. It doesn’t always work the other way, because traders won’t necessarily buy back into the same alt if bitcoin falls. For those who hold, fluctuations in bitcoin’s value against USD are superimposed on the alts’ value against BTC.
Bitcoin’s volatility means it’s like trading a regular currency on leverage, so alts trading is like double-leveraged forex. Needless to say, that doesn’t help when it comes to increasing adoption. One of the reasons GAME has been so stable over the long term is probably because so much of it is traded against fiat, either on-exchange or OTC. Maintaining GAME as a useful currency over the long term will mean ensuring meaningful volumes are traded against fiat – which is, of course, the aim of the new wallet.
Right now it’s only possible to buy in the wallet with BTC. Soon, though, PayPal and credit card options will be added. Regular gamers aren’t going to want to jump through extra hoops to buy with bitcoin, and ultimately forcing that move would probably be counter-productive for the reasons outlined above – it would add unwanted volatility to a currency that will ideally see an unusual (for crypto) degree of stability, hopefully in the overall context of gently rising value.
Alts desperately need the on-ramp for fiat if they are to detach from bitcoin, and from at least some of its underlying fluctuations. There will always be some bitcoin-related volatility if an alts trades against BTC, but the greater the proportion of trading that takes place against fiat, the better. This is one of the benefits that we will likely see as more and more purchases are made by PayPal and credit card: reduced volatility, greater stability and smoother price movements that will be more useful and attractive to gamers.