Many altcoins came down from all time highs between Jan 3rd and 5th as Bitcoin made its way from the $14k to $16k zone. This helps us see some historic patterns. NOTE: A historic pattern doesn’t have to occur again, the past can tell us what to look for in the future, but no one knows what the future holds.
1. Generally, Bitcoin and altcoins tend to have an inverse relationship (when one goes down, the other tends to go up). 2. More specifically, when Bitcoin goes up, alts tend to go down, when Bitcoin stagnates, alts tend to go up, and when Bitcoin goes down quickly, everything tends to goes down.
Understanding that basic trend can help us understand events like the altcoin dip from Jan 3rd to Jan 5th. More importantly, it can help us spot events like the altcoin boom of May – June 2017 and the subsequent correction and it can help us spot events like the altcoin boom of Dec 2017 – Jan 2018 (the events that follow this are still unknown).
Spotting these early and knowing when to take profits, cut losses, buy more, and/or how to generally avoid fully going down with either the altcoin or Bitcoin ship is vital for short term and medium term plays. It also is very helpful for building a long position over time (HINT: buy the dips, not the highs, meaning you might want to skip whole months in either altcoins or Bitcoin when building long positions).
So the above is the gist, but one also would want to know, why the heck does this happen? The answer is pretty simple:
- One factor at play here is that profits made in altcoins are often taken to Bitcoin and profits made in Bitcoin are often taken to altcoins (as opposed to profits being taken to a fiat currency like the US Dollar).
- Another is simply that Bitcoin is one of the main trading pairs in crypto.
- Another is that, at times, when Bitcoin is on a strong run, it can run alone and not take any alts with it (as everyone is focused on the main currency of the Bitcoin economy).
Again, nothing says past trends have to repeat, but since we see them repeating in real time in the here and now, they are at least worth pondering for a moment.
It is so easy to get caught up in the FOMO and mania, when a coin goes 1,000%, and then it goes another 1,000%, you start thinking “well at this point, I’m sure it can go at least another 30%!” Problem with that logic is that, it is just as likely to correct by 80%.
In recent times altcoins have been making very strong gains. We saw top coins like Ripple, Cardano, Stellar Lumens, and New Economy Movement soar to new heights (in terms of USD), and we saw some mainstays like Zclassic and Verge follow suit, and we saw a range of previously less known coins soar like Tron. Some coins even returned to their values in terms of Bitcoin from June – May! That is epic.
However, this time of epic growth for alts notably occurred in a period where Bitcoin had entered a bear market after going from a height of $20k all the way down to $11k upon some Bitcoin Cash drama and futures trading pressure.
Bitcoin couldn’t seem to make headway in this environment, yet the epic rise, futures trading, and dip drew a ton of attention to cryptocurrency. Thus, the new attention plus faltering Bitcoin gave everyone ample room to take advantage of the alt market (and this drove prices up quickly and steeply; twas no futures market bearing down on these other coins).
This uncommon period of time was the perfect space for alts to grow, and while they were growing, Bitcoin’s market dominance fell!
It looked like it might even be time to declare a new king and announce a new phase of cryptocurrency.
The thing is, in the past week or so Bitcoin has made slow and steady gains, inching back toward its all time high with a few quick jumps. Every quick jump so far has shaken the alt market just like any other era of cryptocurrecny.
We have only moved from $14k to $16k in a week, but in that week both jumps saw some popular alts lose 10% – 20% in a very short period of time. That is nothing if you have been holding alts for the past few weeks, but if you bought this week, that 20% means you are down 20%.
If this trend continues, it could make playing alts difficult. If this trend speeds up, and Bitcoin starts running a little quick than that, it means alts have a lot of room to themselves correct.
If you look at those May – June charts, you’ll see that many coins never recovered in terms of BTC. Sure, HODLers did fine in terms of fait prices, but in terms of BTC, it is a different story.
If you bought Ripple at $1, then you can watch it go to $1.50 and claw its way back over the course of months without being too upset. However, if you bought Ripple at $3.50, the 50% correction isn’t going to feel that great.
Likewise, if you never cared for BTC and you invested in Ripple, you can buy at the high and HODL and you will likely be rewarded. However, if you think in terms of BTC, you need to be really cautious about where we are at in this current market.
The moral of the story is simple: be aware of the history of the cryptocurrency market, and be aware of the current market. You don’t need to make rash choices, but you should be prepared for whatever comes next. Thus, you want to make choices now that will feel rewarding regardless of what comes next. If you have enough alts to enjoy another alt boom, but not so much that you will be upset if we have another few months of Bitcoin, that works. If you don’t know and set stops, that works. The only thing that doesn’t work is not thinking it through, being caught off guard.
For this reason, it helps to look at the historic trends to get a sense of not what will happen, but what could.
TIP: For the other side of the story, see: Bitcoin’s Stagnation Gave Way to an Altcoin Boom.