Profiting in the Tide of Third-Generation AltcoinsJanuary 9, 2018
For many, the current events in the altcoin markets, especially those which did not even exist just a year ago might seem completely confusing. The rises and falls, all of which are unprecedented in any other industry in terms of their speed and value, overwhelm many who follow them.
But, the movements in the crypto markets come in cycles which must be recognized and understood for those who want to make a profit, while keeping risks low and their sanity up. In general, the profit comes through holding more assets that are on the rise and less of those assets that are falling.
The second approach includes cycle adjustments, meaning that the investor has more exposure to risk when the markets are on the rise and less same exposure when they fall. This approach is often neglected by the investors and traders. Yet, the key to understanding these adjustments is to have a clear grasp what is the current position of a market in the cycle.
With this knowledge, the investors and traders should calibrate their risks, but also their rewards. In the crypto markets, just like in the rest of the economy, there are short-term and long-term cycles. The short ones are dictated by the flows of capital, market sentiment, and investor composition.
The longer cycles are driven by the aggregate effects of the previous short-term cycles and essentially influenced mostly by the fundamentals of the market events in a prolonged period of time. Here is a more detailed look how the same elements apply to the rapid changes in the altcoin markets over the previous period.
The Gains of 2017
The previous few months saw the market being driven mainly by the process of new capital being introduced to the ecosystem and the long-overdue acceptance of bitcoin. The capital that entered was both institutional, meaning hedge funds and retail. Bitcoin, as the most liquid cryptocurrency, managed to perform well.
Psychology played into this as well. By being the first cryptocurrency they came into contact with, new investors felt comfortable to place fiat money into it. This is why the BTC dominance of the gross market cap of the cryptocurrency domain rose between July and December of 2017 from around 40% to 66%. This happened even though the overall market cap was increasing outside of the BTC network.
The same happened to the price of bitcoin, which rose from about $2,500 to the $20k range. All of this meant that the short-term cycle aligned itself in the favor of bitcoin. But a shift was coming that signified the start of a new cycle.
Movement Favoring the Altcoin Markets
The cycle of growth was over for BTC as 2017 came to its close. With the soaring price, large investors began pulling out their profits. With this, the cryptocurrency price began to falter and the volatility shot up as well.
For investors, it was time for the new cycle to begin and this time, its focus will be the altcoin domain, even including some third-generation cryptocurrency networks. Starting with December 2017, some cheaper assets listed on Coinbase began to a dominant inside of the trading decision.
The investments came from those who are not that well versed in the domain of network core strengths, but who were attracted to the shallowest elements of the crypto space. This primarily includes profit and being that bitcoin had become a household name which was used for purchases, loans, online BTC betting and much more, other cryptocurrencies were suddenly a valid investment target.
This triggered movements that would be otherwise characterized as anomalies. At the start of December 2017, LTC rose from $100 to nearly $400 while BTC continued to lose in value. The same value of LTC was not that high for long as long-term investors, including its founder, began selling their assets.
The process repeated with other cryptocurrencies, including those which the investors never heard of just weeks before. In simple terms, the emerging digital currencies took the place of the penny stocks and mutated into a huge casino where clueless investor’s pumped money left and right.
How to Profit from the Madness
Right now, the answer to the issue of making a profit while the altcoin storm rages all around is a combination of playing it safe and taking calculated risks. Currently, the fear of missing out is dictating a lot of the underlying psychology of the investors just entering the market.
This is why this period is similar to March of 2017. Then, Coinbase began listing ethereum and the media space was bustling with the news about its upcoming rise in its price. ETH indeed began to rise and climbed from about $7 at the end of 2016 to $390 in June 2017.
Many were predicting the so-called flippening, which meant that the ETH would become the dominant digital currency and BTC would slowly drop to nothing in value. But then, the cash pump of the ICOs began to dry up and the price rise slowed down. Simply put, the cycle has stopped and a new (old) one was starting up, favoring BTC.
Just like in other digital domains, like eSports for example, the new does not always win over the old or when it does, the tables can still turn. Today, the flippening is mostly refined in historical context as the market cap of bitcoin seems to be holding more than steady.
Setting up for the Next Cycle
Profit comes from a synergy of overall narrative related to a single cryptocurrency, but also its direct behavior on the market, short-term and long-term. Those investors who want to win over the prolonged period of time must consider the core strengths of a blockchain protocol.
This includes its infrastructure, safety system and measures designed to protect an investment, both directly and on the market. The cycle might favor some alternative coin over BTC at some point, but it is important to realize that the cycle will turn. The same goes for those periods when BTC rises astronomically.
Only through this mindfulness and a basic level of technical understanding can an investment be seen as safe. It might not be perfect but it is a lot better than buying across the board, looking at anything that appears like the next bitcoin.