Are Alts on Sale, or Are They Still a Bunch of Falling Knives?
Some alts like ETH are hitting April lows, some like LTC and ARK are nearing or exceeding December lows, some like XCP are hitting all time lows in BTC prices, and a few new coins are at all time lows in both USD and BTC. That might look like sales to you, or it might look like a sign of the end times. It is largely a matter of perspective.
To me I entertain both views. Here are my thoughts on the current state of things:
- First off, the holy grail of all trading in all markets, in my opinion, is timing the bottom of the alt market. This is because every once in a while alts heat up and can provide gains no seen outside of penny stocks. Historically alt seasons have occurred, and although the last may have been the last ever, if it wasn’t then the next is one I absolutely want to be in alts for.
- Second, there doesn’t seem to be a ton of people trying to find the holy grail at the moment. Traders have been focused on Bitcoin only since June and most alts are experiencing low volume. On top of that 2018 has been rather bearish for crypto outside of the first part of the year. Despite some attractive prices, the alt market is mostly just crickets, tumbleweeds, and bots (can’t tell if they are building positions or just trying to scalp). Traders are likely scared off by the obvious, that until Bitcoin recovers alts could continue to go much lower and investors are likely… just holding bags or cutting losses.
- Third, the BTC pair charts might look good in some ways, but one has to note that Bitcoin is not at a 2017 or 2018 low. When it goes down it generally drags alts down with it. So even alts that look attractive have room to be dragged down by Bitcoin.
- Some alts, Counterparty (XCP) for example, may be at their all time lows in BTC… but just like BTC isn’t at a low in USD, XCP isn’t either. Further, if a coin drops in USD, it necessarily drops in BTC. A coin can always lose another 90%…. even if it might recover in the future. That is true for all coins at any price.
- There have been times when Bitcoin went up but didn’t lift alts up with it (see October – early December 2017 for example). So even if some alts find their bottom in USD they can lose more in BTC! In 2017 you wanted to be in alts for the summer and then out until December 2017. When the time came you only had a matter of a day or two to find the bottom, and anyone who entered alts from the fall forward and held saw profits (with most alts at least). Its a crazy thing to be up against, but it is what it is.
- Some coins have gone up so much since 2015 – 2017 that hitting December or April lows still leaves them up massive amounts (meaning on paper they could lose a lot more value and still provide net gains for early buyers). ETH, LTC, BTC, ARK, NEO and many more are like this. However, that isn’t the case for some newer coins like UKG or SALT. Historically the top coins have kept making gains while many minor coins have gone to the graveyard. So although a coin might seem like a score compared to say XLM in terms of historic prices, it might not end up being as good a play.
- All that said, I would rather buy low and sell high than vice versa. Thus, when I see cryptos at historic lows, I start looking for strategies for entering positions. To “buying low” one can look for good coins at historically good prices, build an average position, and wait for a rebound; or, one can wait until an uptrend is confirmed and jump on the train a little late. The first option is simple, but can be painful if you mistime the market. The second option limits losses but also requires quick reactions, potentially missing some gains, and requires some tactics like understanding TA and likely using stops.
- It is never a good idea to try to catch a falling knife… yet there is generally very little time to catch an uptrend before it happens in the alt market. Still, basic wisdom says stay out of a bear market or short, otherwise accumulate BTC, and then only go into alts after an alt rally is confirmed (all of which requires very high level skills). Trying to catch a falling knife sounds like a bad idea on paper, and that is why the metaphor is used in trading. When an asset’s price is in a steep downtrend, it rarely makes sense to buy aggressively (averaging in is risky enough; aggressive buying is truly a gamble). Whether it is Movie Pass’s parent company HMNY (one of the worst preforming stocks of 2018) or some random altcoin that has been in a downtrend since January 2018, there really is no limit to how low an asset can go before it gets delisted from the exchanges or people top mining it / developing it. Of course, of those assets that do recover, the deep losses tend to be made up for quickly… meaning if you do catch the knife it can result in a massive (and if you are lucky quick) payday.
- If you would sell lower than you bought, figure out where your threshold is beforehand. Either set a stop or make a commitment to sell at a certain level. If you would not sell, create a plan for what happens if a coin keeps going down. When will you stop buying and give up, how frequently will you buy in?
- If you hit it big, figure out how much you will sell and when. There is nothing more frustrating than finding the moon and then refusing to get off the spaceship. If you 10x on a coin, it makes sense to sell of at least part of it. If you 1x, it makes sense to sell a bit and average down your price that way. Sure, that might limit future profits, but it also protects you in a host of ways. In 2017 many HODL’d, it generally worked out well. In 2018 many HODL’d, and their resolved has been tested. There is logic behind HODLing, but its best done strategically. If you have the grit to HODL through 90% losses, and you have a reason, that is valid. However, it generally makes sense to sell of part of your stack at or near the top and then to save some money to buy lower. Selling 10% at the top and then riding a coin down 90% let’s you double your position at the bottom. Many alts have gone up over time, but its worth taking at least some rewards when you play your hand right. For me, HODL is largely about sticking with a position until opportunity rolls along (instead of playing scared), it isn’t about gettin greedy and looking for 100x after we 10x (for example).
All that said, at some point one either needs to get in alts or get left behind if and when there is another alt season. Bitcoin is probably not going to 10x, but some alts might at some point. Finding the right coins and right entry points won’t be easy, and there will be lots of room to mistime the bottom, of course… there is no easy money.
I’ll leave you with these thoughts:
- In the Summer of 2017 and Winter of 2017 – early 2018 people could not have enough alts (just like at other points one couldn’t have enough Bitcoin). Almost every altcoin saw a massive price increase in that time, there were very few exceptions.
- In order to get those alts you either had to buy right at the start of the alt rally or right before it.
- The bleakest times for alts tend to be right before the rally.
- The majority of people will wait until alts have already made large gains to buy in.
- Unfortunately, there is no way to know how much more downside there will be until the next alt rally or if there will ever be an alt rally again.
- All we can know is that many coins are nearing lows and this is clearly not the all time high for most coins (as we already saw all time highs).
I guess the bottomline is this, going dumpster diving for falling knives is generally a bad idea… right up until the time you stumble across some treasure another man thought was trash and that dive becomes the best decision of your life. Of course, you have to either love the tech or love gambling to take that dive. If you want to be conservative, look for signs of recovery first. Either way, you’ll need Bitcoin and an Binance, Bittrex, etc account.
DISCLAIMER: The coins I used as examples are all coins I own (mostly because I own a bunch of different cryptos). They aren’t however coins do or don’t recommend, they are just examples of coins in a given position. There are other coins in that same position, feel free to click through charts and find them. 🙂