(Continued from Altseason Playbook, Part 2 of 6)
In my last post, I wrote about how I balance my portfolio between bitcoin and altcoins. In this post, I share my thoughts about buying only big, "safe" cryptos.
This article is adapted from my December 17, 2020 special issue of Crypto is Easy. To read the whole post, including more tips and commentary, visit Bitcoin hit $20k! Prepare for Altseason.
Look down before you look up
While any random altcoin may move in the opposite direction as bitcoin at any given moment, the overall altcoin market will rise or fall as bitcoin does. Bitcoin always leads, altcoins always follow.
Look at this correlation matrix, which shows how closely price movements match each other. Anything red signals a high correlation.
All the altcoins are red.
When bitcoin goes up, everything else goes up. Large caps, small caps, micro caps, and everything in between.
This may make it seem like you can buy any altcoin and come out ahead. And that may be true, but some altcoins will not ever get back to their all-time highs from 2017 and 2018.
For example, Litecoin can go up 200% from today's price and give you amazing returns, unheard of in any other market that retail investors can access—and still not reach its previous all-time high.
Meanwhile, smaller, newer cryptos will do far, far better.
When you look at altcoins from the last two market cycles, you can see most large-caps fell out of the top-30 as the market went up. Some died.
At the 2017 peak, the top 30 included only five of the top coins from the 2013 peak.
Perhaps that's not fair, because the bear market killed a lot of them.
Let’s start from November 2015, the end of the first great altcoin bear market. Surely, any altcoin that survived that bear market should dominate the next bull run, right?
Take a look at the list:
Only eight stuck around through the end of the 2017 bull market. Only three remain in today's top 30, and two of them -- LTC and XRP -- should have fallen off the list a long time ago.
Many altcoins in today's top 30 either didn't exist or had a miniscule share of the market in 2017. You can bet more will enter the top as we get closer to the market cycle peak.
Out with (some of) the old, in with (some of) the new
Bottom line: big altcoins are not safer than small altcoins. Old altcoins are not better than new altcoins.
Some of those fallen projects had legit tech with strong teams and a lot of momentum. They would have done you no favors as a portfolio asset.
Right now, you have billions of dollars worth of Bitcoin Cash holders thinking they’re going to get rich. I’m sure that’s how Feathercoin and NXT holders felt at the beginning of the last two bull runs.
From a pure investment perspective, you need to think carefully before you default into the common strategy of “mostly large caps like ETH, LTC, etc with a few small caps as speculations.”
They’re all speculations, even the big ones.
In a speculative market, why put money into the ones with old tech, disintegrating developer communities, no hype, and no real-world usage? Today’s leaders came from the bottom. Tomorrow’s leaders will do the same.
Look down before you look up.
For those who want to build long-term stakes in smaller altcoins with strong fundamentals, check out Altcoin Insights.
Learn More About Altcoin Insights
While Altcoin Insights won't help you with altseason -- it's not a trading service or a "hot tip" service, just a way to get into some small altcoins before everybody else does -- you may want to hurry. I will close the service to new members on February 15, 2021.
After that date, it's all about gearing up for next altseason, whenever that comes.
Stay tuned for strategy #4.
Mark Helfman publishes the Crypto is Easy newsletter. He is also the author of three books and a top bitcoin writer on Medium and Hacker Noon. Learn more about him in his bio.
Originally published on Voice.com.
