As cryptocurrency experiences volatility in the short term, there is likely to be a lot of little rallies. On each rally, altcoins have a chance of bouncing.
Or at least, historically, in the general downtrend since January, many Bitcoin (BTC) recovery attempts have correlated with altcoin bounces (and even in the uptrend of 2017 this was often true; see the historic relationships of alts and BTC).
Often, but with a few notable exceptions like late December 2017 to mid-January 2018, when Bitcoin declines it drags altcoins down. However, when Bitcoin inevitably attempts a recovery, alts tend to follow lock step (at least at first).
In these times when Bitcoin attempts to recover and alts follow in step we often see a handful of alts bounce harder than Bitcoin and outpace its gains in the short term (over the course of minutes, hours, or days).
Part of the reason for this is the lower volume markets of alts; another part is that altcoins often lose bigger percentage amounts when Bitcoin declines. Thus, they have more room to bounce. Please consider the implications of that point, it means alts have more room to go south if we go that direction.
To play these bounces, one has to be very attentive and tuned in. Also, one has to be willing to take bigger risks than they otherwise might be comfortable with (there is no easy money). Also, one has to be quick at spotting the bottom or a reversal at the bottom and quick at spotting a top or a reversal at the top.
You can see 20%+ gains in a short time frame if you pick the right coin at the right time. However, very often those gains will be followed by equally as big if not bigger losses if the rally does not hold and people flood back to Bitcoin, Ether, dollars, or TUSD (into a generally safer, less volatile, and more in-demand asset tradable on the exchanges).
Further, and to the last point, most coins need to be traded for Ether or Bitcoin. Often one will have to do a quick trade out of those coins and back into dollars or Tether to truly lock in profits. This can be chaotic, result in fees, and result in a loss of profits during the transition; it is one the reasons there is a little less volume in the market. Not everyone is in crypto is willing to do this sort of dance.
Another note to consider is that often the decline phase of a given wave is quicker than the incline phase in markets like this. Meaning, traders are quicker to take profits in a volatile market in a longer term bearish trend then they are in a bull market with an upward trajectory. Thus, one has to watch out for those very quick sell-offs where the sentiment of the market changes on a dime and everyone goes from lambo mode to bear mode before you can blink.
This means there are lots of opportunities in this market for quick gains, but these opportunities are high-risk opportunities best suited for those with disposable incomes, high risk tolerances, and high skills levels. That could change at any moment, but for now, this is generally the case due to all the quick moves one needs to make to ensure profits in the short term).
An interesting thing to note is, that while Bitcoin which was Bullish for all of 2017, alts have been through this cycle more than once in recent times. In the early summer of 2017 there was a big alt boom and then a big alt bust. If you look at the charts from that era you can get a sense of what you might expect moving forward. That is a slow decline on a long time frame, lots of little bounces on the way down, and then a setup for the next cycle (which we hope will be a solid and sustainable uptrend).
Remember though, this isn’t a market like December 2017 – mid-January 2018 where buying an altcoin and HODLing is a solid short-term move. And nothing says this has to be like 2017 where it’s just a matter of time before every low we see at this point is likely to be surpassed. This is reality happening in real time; we have the market we have, the past we have had, and an uncertain future.
This is a market where timing the bottom and then timing a perfect exit can mean a big payday, but it’s also a market in which any faltering on either side of a trade can wipe out half your gains (if not dig into your initial investment). It is a market that turns HOLDers into bag holders on every wave (and this will be true until that very last wave, which can be any length of time out from here).
In summary, I have one additional word of caution to offer. That is, after a historical cycle like this where Bitcoin goes up, followed by XRP, followed by ETH, with all alts mooning in between, we generally see Bitcoin recover first (see “the cryptocurrency rotation“).
NOTE: A rough sketch of the cycle has historically looked like this; remember, history doesn’t have to repeat.
- NEW MONEY GOES TO BTC
- BTC BUBBLE POPS
- MONEY GOES TO ALTS
- XRP BUBBLE POPS
- MONEY GOES TO ETH
- ETH BUBBLE POPS
- DEEP CORRECTION [<—- you are here]
- BTC AT ALL TIME HIGH WHILE MOST ALTS STAY IN CORRECTION.
- BTC DOMINANCE GETS OVER 50% AGAIN
In the correction phase (downward phase) we often see Bitcoin and alts bounce in the way described above. At the end of the cycle, we may see alts bounce harder than Bitcoin at first as well. However, historically from that point, we have tended to see Bitcoin and Bitcoin alone prove to us and the world that a true crypto recovery is upon us (and in this time all focus is on BTC, and most alts tend to decline against it and stagnate in dollar values).
History does not have to repeat. There do not have to be any altcoin bounces; Bitcoin doesn’t have to recover; the rotation doesn’t have to go in order; if or when Bitcoin does recover, it does not have to do so in solo mode.
However, to the extent that history does repeat, that crypto produces fractals, and that we see similar cycles and patterns that we have seen in the past, we would want to keep an eye on altcoin bounces.
Not everyone will have the risk tolerance to play this market, but those looking to build long positions in alts and those looking to make some quick high risk/high reward trades will want to keep an eye on the markets and its potential for repeating trends and cycles.