How the value of an altcoin changes in relation to bitcoin's price.

A lot of people have asked why the value of altcoins change whenever bitcoin's price increases/decreases. To help explain this dynamic, using Reddcoin as my altcoin, I'll illustrate how this works below.

There are two distinct, yet related market forces in motion with the value of an altcoin. One is it's value in fiat, commonly USD. Second is the value of the cryptocurrency pegged against it. In the case of Reddcoin (RDD) it is pegged against BTC. Depending on whether these two forces move in sync or in contrast with each other the price will grow/shrink accordingly.

Ok, bear with me.

Starting with the example of 0.1 BTC = $100 USD and 0.1 BTC = 10,000 RDD (therefore 10,000 RDD also = $100 USD), here are some ways things can move:

a) When BTC's USD value goes up and RDD's value against BTC holds then the USD value of RDD goes up. eg. 10,000 RDD = 0.1 BTC = $200 USD (BTC/RDD hasn't moved, BTC/USD value has increased)

b) When BTC's USD value goes down and RDD's BTC value holds then RDD's USD value goes down. eg. 10,000 RDD = 0.1 BTC = $50 (BTC/RDD hasn't moved, BTC/USD has decreased)

c) If, instead, the USD value of RDD holds while the USD value of BTC is rising then RDD's BTC value drops. eg 10,000 RDD = 0.05 BTC = $100 (BTC/RDD has gone down, while the BTC/USD value increased)

d) If BTC's USD value is rising and RDD's BTC value is rising at the same time then RDD's USD value grows exponentially. I believe the kids call it 'mooning'. eg 10,000 RDD = 0.2 BTC = $400 (both BTC/RDD and BTC/USD have gone up)

e) If BTC's USD value falls at the same time that RDD's BTC value falls then RDD's USD value plummets. eg 10,000 RDD = 0.5 BTC = $25 (both BTC/RDD and BTC/USD have fallen)

So one value rising will have an effect on the other, but not necessarily the same effect every time as each market can occasionally fluctuate independently.

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Things can become rather confusing very quickly when you're starting out in this crypto world but I hope this was simple enough to be clear. Feel free to ask questions below and I'll do my best to help!

Peace & Profit
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