After a run-up earlier this month and a quick sell-off after the Bitcoin Gold fork, Altcoins seem to be following Bitcoins price again. Is history set to repeat?
A quick look at one’s portfolio (if they are an investor of BTC and alts) or a quick look at CoinMarketCap.com will show you that, for the most part, major Alts (top coins by market cap that aren’t Bitcoin) are roughly tracking Bitcoins price this week (especially from about the 25th – 27th).
UPDATE: The tethering lasted all of a day. Alts really didn’t mirror Bitcoin as it went from the $5ks to the $7ks. Rather alts went down as the Segwit2x fork seemed to draw all investors to BTC. One could argue that this left alts oversold. Alts could be in for a big spike after the Segwit2x fork. Watch for that and be patient.
NOTE: The information below shouldn’t be considered as investing advice. It is meant only to be informational and help you better understand the crypto market so you can make your own investment choices.
TIP: The following screen grab from CoinMarketCap illustrates what we are talking about (for me, the 7 day graphs for the top 13 coins show enough of the same movement to raise an eyebrow over):
Is a Pattern Emerging?
This has been an ongoing pattern in the crypto markets (especially since mid-2017, but generally since day 1).
That is, the prices of coins mimic each other, but even more-so the prices of Alts follow Bitcoin’s price.
The pattern overall works like this (to over simplify a ton of data to tell a story how-I-sees-it):
The prices of Bitcoins and alts mimic each other (generally with alts following Bitcoin), then Bitcoin goes off on a tear leaving alts behind, then alts start to catch up (they tend to lag when BTC goes on a rip, but not always), then alts drop (acting as if they are oversold), then after some more growth Bitcoin sees a sell-off (upon which investors often move into alts quickly, thus spiking alts), then alts fall back down the previous levels while Bitcoin recovers, and then the prices reattach and start to mimic each other again.
This would be all fine and dandy if the increase in alts was sustained, or if the increase in Bitcoin wasn’t… but this has not often been the case.
What instead has been the case is that alts end up around back where they started (maybe a little higher in some cases, maybe a little lower in others) while Bitcoin sees growth over time.
The result is that Bitcoin has so far been a clear winner as a medium term investment.
If you bought Ether for $300 back in the start of the summer, you have a zero percent return roughly. If you bought Bitcoin for $3,000, you have doubled your money.
Sure, there was a spike up to $400 for Ether, but even selling at that high netted you less profit than hodling BTC.
Meanwhile, buying at $400 has lost you $100 per coin (as it stands, who knows what the future will bring?!)
Meanwhile, buying Bitcoin, even at its previous $5k high in the summer, ensured a profit if you held. Literally, if you bought before October at market price, at any point, even moments before the epic early September crash, you made money if you held until to right now (or generally any moment in late October so far).
Meanwhile, some Alts have gone through the roof, but almost in every case they crashed back down to earth (typically, for solid coins, coming back down at or around the average price they have been trading at). Thus, sure, there were a few coins that did better than Bitcoin short-term, but rarely do we see one that did better medium term or long term.
Here we have to keep in mind that I only have a few chunks of data to work with. I can look at 2010 to 2013, I can look at around the late 2013 crash, I can look at 2014 to 2017, and I can look at mid-2017 to now. Mid-2017 to now is when 90% of the action happened, so when I say medium term, I mean mostly “in these recent months since mid-2017, but since the summer especially.”
With all that noted, it is hard (er, impossible) to say what the future holds. I’m personally very bullish on Ether for example (second highest coin by market cap, unique platform that doesn’t mimic Bitcoin and thus has value on its own). I’m also bullish on innovators in the crypto space and standout alts that offer something unique. However, based on what has happened so far, Ether has been like putting my money in a really stressful bank most of the time (that is, no change in value, but lots of nail biting as prices go up and down).
The end result of this is from some perspectives simple. It is: Bitcoin is the most attractive alt from an investor standpoint (i.e. in terms of gains over time, not in terms of other metrics).
From other perspectives, it isn’t so simple. After-all (and to the above point), since the other top coins have held a steady price, one could argue they for that reason work better as currencies (one wants a stable price in currencies). One could also argue Bitcoin is overbought compared to other top alts (there is something fishy about a value store, called a currency… but yet isn’t always useful as one, that ALWAYS goes up).
Of course, one has to ask themselves if they want to ride the Bitcoin rocket to the moon (which requires betting on the idea that it will go to the moon), or if they want to argue about other top alts and the downsides of Bitcoin?
A conservative strategy is to invest in every direction and hedge (setting stops based on resistance zones, based on analyses like this, and being ready to buy right back in at dips). So far that would have got you BTC gains and kept you steady in most major alts (with a few opportunities to take profits here and there).
A more risky strategy for those who want to see gains is different though. It is simply: limited exposure to alts and heavy in BTC (buying dips, taking profits, setting stops, etc). It makes a ton of sense to buy alts before a major event like a Bitcoin fork (when alts have already lost their value while everyone piles into BTC), likewise, it makes a ton of sense to sell BTC at highs and then buy again after the dip (once you quickly take profits on your alts). Of course, one wants to be in for the forks… but it can be a nightmare getting a sell in at a good price once that key block hits during fork time (BTC dropped a few hundred in moments after the Gold fork block for example).
Of course, this is just musing on general concepts. For all we know alts go to the moon and Bitcoin comes back down to $300 next Tuesday. Or maybe all coins go to the moon. Or maybe Jamie Dimon was right? Like, who knows…?
I don’t want to act like I’m giving investment advice or like I can see the future in the lines I draw on a chart, in fact I’m trying to avoid even general opinions here. This is more like me trying to open your eyes to what has been happening so you can make your own choices. We aren’t doing the Jim Cramer thing on our site or this page, just really musing on the question, “since alts are following altcoin again, and especially with SegWit2x coming up… is the pattern mentioned above about to repeat?”
If the pattern repeats, then taking profits on alts when they spike and buying Bitcoin when it goes down is the right move. If history doesn’t repeat, then who knows what the right move is?
Interesting times to say the least. That is the only sure thing.
NOTE: An actual conservative strategy is probably spending 1% or less on coins, taking profits, setting tight stops, and generally investing the S&P or Berkshire Hathaway Class B with stops (but we are talking about crypto here, the safest investments like Bonds and CDs.)