DON’T MISS OUT ON THE BIG MONEY OF A NEW ALTCOIN CYCLE
Currently, there are over 5000 altcoins in the crypto market, and they accounted for more than 34% market capitalization of the crypto market in February 2020. Altcoins compete for market dominance and create fierce competition in the market. Some of them like Ether, Litecoin and Ripple have, over the years, increased in popularity and value.
However, the value of a coin is hinged to many factors (e.g. price trends and fundamental analysis). While other factors may be inconsistent sometimes, one always remains consistent: Bitcoin. No matter the potential of a coin, its value must be impacted by the current price movement of Bitcoin.
We saw this happen with Ether. This year, 2020, Ether enjoyed a bullish run. It started the year at $130, hitting $279 by mid-February. The coin enjoyed more recognition and adoption. And its increased value was further consolidated by the news of the improvements that would be launched soon on the Ethereum network.
However, with the Covid-19 pandemic which affected the global economy and caused a price drop in Bitcoin, Ether’s price dropped to $135 as of mid-March. Bitcoin price drop wasn’t the only factor implicated in Ether’s decreased value, however, it played a significant role.
Also, there are times when a rise in the price of Bitcoin causes a decrease in the price of altcoins. Therefore, to speculate a new altcoin cycle, an investor must first understand the price movement of Bitcoin. Before we predict the new altcoin cycle in this article, we will first examine the possible relationships that exist between altcoins and Bitcoin.
Price Relationship between any Altcoin or Bitcoin
—Bitcoin low, Altcoins low
Bitcoin is the most stable of all cryptocurrencies. It is also widely recognized and adopted, and can be exchanged with fiat currencies or altcoins. Altcoins, on the other hand, can only be exchanged with Bitcoin. When investors speculate a bearish market, they panic and altcoins are quickly traded for Bitcoin. This is because Bitcoin easily regains value after a bearish run. Investors would rather prefer to hold Bitcoin or exchange it for USD, instead of holding altcoins. For instance, there was a massive sell off of Bitcoin in March due to the coronavirus pandemic, plummeting its value by 48 percent within 24 hours. With the economic depression and uncertainty that accompanied the pandemic, many investors thought it wise to liquidate their crypto assets.
—Bitcoin high, Altcoins low
It is logical to think that since Bitcoin is the poster child of the cryptocurrency world, altcoins should ride on its wings. But this is not exactly the case. Bitcoin has amassed so much visibility and value that many investors do not trade altcoins as a store of value, but as a way of increasing their Bitcoin. So if Bitcoin experiences a bull run, money would flow from alts to Bitcoin. One reason for this is the fear of missing out experienced by investors. Thus, a rise in Bitcoin price births further increase in its value due to high demand in digital assets.
At present, Bitcoin has bounced back from its March lows. This rally has been attributed to key factors like institutional buying, supportive monetary policies and the halving.
The halving and what it means for altcoins
The crypto world always anticipates Bitcoin halving — the control measure that keeps inflation in check. Occurring every four years since November 28, 2012, this year’s halving took place on May 12. This means that since May 12, miners’ reward has reduced by half — from 12.5 BTC over the past four years to 6.25 for the next four years.
Historical trends have shown that a halving is always preceded by a rise in Bitcoin value. This is because investors speculate that halving will cause a meteoric rise in Bitcoin, thus they accumulate as much Bitcoin as they can before the event. And the 2020 halving was no different.
Past trends also show that there is usually a significant drop in Bitcoin value after halving as miners and investors liquidate their digital assets. But that may not be the case this year. The coronavirus pandemic has made many question the efficiency of fiat currencies. Social distancing laws and closure of businesses have opened the eyes of many to the benefits of crypto. So instead of a price drop in Bitcoin, there is a high possibility that it would trade sideways — forming no distinct trends over a period of time; as the liquidation of Bitcoin into USD would be counterbalanced by the entry of new investors into the crypto market and by old investors who would hold Bitcoin as a store of value. Thus, this signifies a good time to invest in altcoins.
When Bitcoin trades sideways with its value relatively stagnant, investors begin to invest in underperforming altcoins, causing the price of altcoins to rise quickly. Since the beginning of this year, there have been bullish speculations for the altcoin market. The market has experienced a long bearish trend since 2017 with some altcoins (e.g. DASH) dropping to its January 2016 value. Thus, it is expected that there would be a rebound and the beginning of a bullish trend for altcoins since the crypto market moves in cycles of lows and highs.
With a gradual rise in the value of Bitcoin, many altcoins will follow suit. Crypto analyst, Nicholas Merten, predicts that Ether and Litecoin are among the altcoins that would perform excellently before the end of 2020. For Ether, the launch of phase 0 of Ethereum 2.0 would play a significant role in its upward trend.
How to benefit from the new altcoin cycle
A trader that will benefit from the new altcoin cycle is one that understands the cycle. Usually, a bull run in the altcoins market is quite short-lived compared to a bear run. As explained earlier, altcoins can only be exchanged with Bitcoin; this means that as investors that start trading look into buying and selling altcoins, they must first purchase Bitcoin. This boosts the demand for the latter, and leads to a corresponding increase in its value. Much of this can be seen on many industry leading cryptocurrency exchanges with their huge trading volume in the digital currency space. Showing much of the high volatility as traders both find themselves losing money and then making money in the crypto exchange they find themselves on.
As a trader or investor, do not make the mistake of thinking that the market would align to your speculations. The market is unpredictable. Therefore, the best strategy is to buy closer to the bottom, and sell closer to the top. Each area often show large deposits and withdrawals as traders fall into FOMO or FUD patterns longer term.
Understand the psychology of the market. Know what triggers the increased value of a coin. Sometimes, it seems like crypto traders and investors get bored of Bitcoin’s perpetual dominance of the market. For this reason, many may rush into investing in a new coin, touting it as the currency that will upend Bitcoin’s dominance. Brendan Bernstein in a Coindesk article, went down memory lane to March 2017 when Ethereum launched on Coinbase. Ethereum had a massive run as investors flooded its space, with some even quitting their jobs to join the party. Bitcoin’s dominance plummeted from 86 percent to 40 percent. But it wasn’t long before the party stopped. Institutional capital returned to Bitcoin, and its dominance was restored.
Do not allow the fear of missing out make you buy a coin at the top. The best time to accumulate altcoins — and Bitcoin, too — is at the beginning or middle of the altcoin cycle. While you do this, it is best you apportion your capital wisely. Your capital should be balanced between Bitcoin and alts.
Furthermore, be alert especially if you are holding large positions on alts. Bernstein says that as the cycle peaks and begins to reverse, illiquid tokens with smaller market caps will fall as quickly as they rose, making it impossible to sell these tokens close to the quoted price. Always remember that in the crypto space, your loss is another’s gain. Always seek to shore up your digital wallet and profits and losses.
The New Cycle, Smart Options, and You
At Smart Options, we are committed to ensuring that you make the right investments at all times. Be assured that we will keep educating you with all you need to know regarding this cycle. We will carry out studies and analyses and keep you abreast of our opinions regarding the market, no matter which trading platform you use, or digital currency you favor, bitcoin cash, Lite coin or even Doge Coin. We will also continue providing trading signals to make sure you profit as much as possible from this new cycle.
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