A word to the wise. Alt-coins are a headache to manage and trade, few social-media ”analyst” that don’t trade claim will this and that… Extraordinary claims require extraordinary proof, show backtests with the pairs and timeframe, show historical Profit-N-Loss, show a livestream on how you take in consideration the many variables. Everyone makes calls, few really back them up.
I wish I had this knowledge before I wasted my BTC’s on shitcoins like Neo, Gas,
Fact is 99% of the Altcoins are paired to BTC… this extra variable makes trading altcoins on shorter-timeframes a headache.
You’re better off just swingtrading, position trading your alts. Here is the truth about Altcoins/BTC pairs.
In general, no Alt-coin can rise without Bitcoin leading the way… ofcourse there are exceptions. Exceptions can be made for illiquid shitcoins. Or ponzi/pyramid projects with build-in staking mechanism like HEX.I am suggesting that staking-schemes are used by the insiders and exchanges to limit the amount of incoming supply during price rallies by incentivizing retail crowd to hodl.
Trends are nothing more than supply-demand imbalances… strong uptrends = high demand and low supply. Guestimate the orderbook depth with tools like TRDR or MarketDepthRatio
While Bitcoin is appreciating in Dollar-value……
Micro-cap and mid-cap Alt-coin that are paired to Bitcoin- (for example CKB/BTC) will by default depreciate in Satoshis —> if supply is greater than demand.
If demand is neutral and Bitcoin is becoming more expensive in Dollars…. the exchange will automatically adjust the satoshi’s to match the dollar value of the Alt-coin.
You must have buyers, who are willing to exchange their Bitcoin for your Alt-coin.
A great way to skim through the depth of the market is with MDR (market depth ratio). Use large timeframes like 1 Week, 1 Month smooth out, average out spoofing.
Or pay these guys $220 a year for https://www.trdr.io This is what I use to analyze the depth of the market.
The problem with Alt-coins is the BTC-pairing. To trade Alt-coins, you need 2 charts.
BTC/USD + Altcoin/BTC
Why do we need a BTC/USD chart? Because 98% of Altcoins are by default paired to Bitcoin, the other 2% are paired to Ethereum.
Altcoins follow Bitcoin. The correlation is uncanny. And Bitcoin correlates with SPY, the same forces that move the stock market, are the same forces that move Bitcoin.
If Bitcoin tanks 10%… Majority of the Alt-coins that show high correlation with Bitcoin will likely follow that 10% drop in Dollar-valuation.
edit : 2020. We are seeing a outlier in 2020, this has to do with the Covid, Fed’s infinite money glitch, financial reset and certainty. Paypal accepting bitcoin, JP morgan endorsing bitcoin, Microstrategy CEO Michael Saylor buying 500 Million worth of bitcoin. Few fortune 500 companies liquidating their cash reserves for Bitcoin. These are anomalies nobody predicted. Sometimes when Bitcoin pumps… majority of the alts bleed.
If you are anticipating a 5%-10% drop in Bitcoin, expect most Alt-coins that correlate with Bitcoin to follow.
I use Bitcoin macro-cycles to forecast tops and bottoms for Alt-Coins. I am very picky when it comes to Alt-coins. Few midcap Alt-coins will by default outperform Bitcoin in bull-cycles and the returns are insane. In every cycle, there are always a few altcoins that outperform Bitcoin by a few hundred percent. Midcap Alt-coins have plenty room for growth. But every cycle is different, previous cycles showed a large influx of ignorant normies, believing that every shitcoin could be the next Bitcoin without understanding the mechanism or fundamentals behind the project. You must understand the consensus mechanism (security model) to understand the cost of production 95% of the coins are worthless.
In general, your exposure to Alt-coins should be no more than 15% of your entire portfolio. My portfolio = 90% BTC – 10% Altcoin.
I have Nervos in my alt-coin Portfolio, which I actively Manage. I actively trade Nervos for accumulation purposes, this allows me to buy at a discounted price. I don’t trade Nervos for BTC or USD. Nervos is a long-term hold.
Update 10 July 2020
Anyone remember the old Antshares – Antfinancial connection memes? Hurdurr NEO working with the Chinese Government memes. Guess, which project China is now backing?
Altcoins have shitload amount of unknown variables and generally should be treated as HighRisk-HighReward. Because of 90% the Alt-Coins are outright scams. The newest scam is supply-dilution during main-net migration.
- Supply circulation and issuance (how much is unlocked, taken from the vault and dumped on the markets)
- Supply allocation (Who holds majority of the supply?) Public or the developers/funds?)
- Supply absorption (quality of the crowd. Who is buying – long-term investors or short-term speculative traders?)
- Consensus model… For me… proof of work only. The project must proof work. Backed by electricity bills.
- Most altcoins are NOT genuine cryptocurrencies. Genuine CryptoCurrencies don’t have CEO’s, Offices, CANNOT be shutdown by governments and certainly aren’t registered in off-shore shell companies affiliated with the paradise-papers.
- Crypto-currencies aren’t services… The term cryptocurrency has been been hijacked by Companies and Startups.. promoting utility tokens as ”currencies. You’re literally buying a service, most altcoins fall under the category Utility, hence why most Altcoins are dubbed Utility tokens. Utility-Tokens represent a cost of a service. What all these scammers won’t tell you is this. A utility token can only serve as ”currency” for paying transactions-fee’s on their network. Outside the network it has little to no value.