Why Altcoins Continued to Blast Higher on Thursday

At this point, it feels like we might be in for a long and sustained rally in cryptocurrencies. During yet another day when investors couldn't get enough of digital coins and tokens, many altcoins booked solid gains Thursday.

Among the long list of winners were the already-popular Solana (CRYPTO: SOL) and utility coin Filecoin (CRYPTO: FIL), both of which motored ahead by over 12%. Meme coin Shiba Inu (CRYPTO: SHIB) has attracted its fair share of criticism, but it was barking happily with a similar gain. Another well-known altcoin, Cardano (CRYPTO: ADA) didn't quite reach those heights, but still increased by a healthy 7%.

Follow the leader

At their core, all cryptocurrencies function similarly -- they are distributed among scores of "nodes" that track their creation and distribution. That's why, when trading, all tend to follow the trajectory of the original and still most significant crypto, Bitcoin (CRYPTO: BTC). It's a truism that when Bitcoin has a good day, for the most part, altcoins tend to do well, too.

Lo and behold, Bitcoin had yet another lucrative trading day on Thursday. Following its leap over the $60,000 barrier on Wednesday, it generally maintained its value; as of early evening, it was changing hands at over $61,400.

The continuing strong inflows into the new-ish spot Bitcoin exchange-traded funds (ETFs) remain a big factor in their foundational coin's rise. There is another factor, however, that should come more into play across the coming days and weeks -- the halving.

Every four years or so, the reward for "mining" (essentially creating) Bitcoins gets halved. This is part of Bitcoin's designed trajectory, and it happens when the supply of the cryptocurrency reaches a particular level. The next halving will take place when the total number of blocks in the Bitcoin blockchain reaches 210,000 -- which experts expect to occur sometime in April.

The purpose of halvings is to slow the rate at which new Bitcoins are added to the available supply as it pushes toward its maximum number, which has been set at 21 million coins. A basic principle of economics is that the more constrained the supply of a good or service, the more valuable it becomes in the minds of many investors, and the more they're willing to pay for it.

Nothing lasts forever

This has a cascading effect on altcoins. Since Bitcoin is becoming more valued by the public, other coins and tokens must also be worth more.

So it's no wonder that this rally is so broad, encompassing practical cryptos and meme coins alike. Whether it will last is another question entirely -- what goes up must inevitably come down. Cryptos have been blazing hot in popularity with investors lately, but let's remember the times sudden cooldowns in this sector have occurred, too.

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Eric Volkman has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin, Cardano, and Solana. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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