If you’re currently investing, trading, or betting your children’s future on cryptocurrencies chances are your screens are predominantly red in the past couple of weeks. The cause of this is pretty obvious; Bitcoin is sucking almost all of the oxygen out of the market and your altcoin portfolio is suffering. In order to survive and thrive this cycle, it is essential to manage both your market entries and your behavior.
Before we dive into how to position your portfolio, let’s take a moment to examine some important elements of market dynamics. There is more to this than people wanting to snag their “free coins”. There are some important macro (big picture) forces that are fundamentally changing the market. Big(ger) money has started to flow in to the crypto space. This type of money brings in more experienced investors with a somewhat more conservative approach. The amazing profits generated by crypto in 2017 have caused many seasoned investors to take some money off the table. This results in a classic “flight to quality” scenario. The rates of adoption of crypto vary widely around the world. This isn't the end of the road for altcoins, but be wary of trying to catch a falling knife. The trend is your friend.
FLIGHT TO QUALITY
This is where investors who have been all-in in riskier plays cash out and park their money in investments which they believe to be fundamentally safer. Historically, this position has been fulfilled by Gold and US Dollars. Due to the challenge of moving large amounts of money out of most exchanges, we’re now seeing the role played by Bitcoin, Ethereum, and Litecoin. Although there was a short lag in the recent Bitcoin run up, ETH and LTC subsequently reversed some of their losses and achieved real gains. Remember, Big Money is starting to roll in. Today’s Whales are tomorrow’s Plankton.
SECTOR ANALYSIS
Every coin introduced in the past 12 months has a story. Be it an app, ecosystem, cause, or a new take on spending money, there are strong marketing efforts (of widely varying quality) present in each and every one. A lot of them are promising, sound plausible, and would be great if the story plays out according to the white paper, but sadly, very few actually will. If a market doesn’t absolutely need a new currency to pay for a product or service, it will use an existing one. Also, when you’re buying tokens based on some great idea, you’re typically buying the currency used within that ecosystem. For example, instead of buying shares in Amazon, you’re actually buying Amazon gift certificates. If those gift certificates go to the moon, it will take the price of the underlying product or service right along with it. Not too good for business growth! That all being said, there are sectors worthy of consideration. But it’s important to do your homework and understand the value of the token your buying rather than having faith in an ever upward price trajectory.
REGIONAL ANALYSIS
Not every region or nation is adopting cryptocurrencies the same way. You’ve no doubt read about restrictive policies in China and South Korea. You’re also probably reading a lot about examples of adoption in smaller countries that seem really progressive. The ability to research and understand which specific crypto is being adopted for actual use in which countries will assist you in determining the real market size. Any currency that is able to achieve actual daily use in any developed market will be a winner in at least the short term. But determining the rate of adoption requires real research/homework. Articles are a great place to start, but you need to dig deeper to make sure that what you’re being told is true or if it is just ridiculously optimistic marketing being pushed out to pump the price of a loser coin.
BOTTOM LINE
If you are hell-bent on timing the market to squeeze out every possible satoshi of profit, I hate to be the one to tell you, but you are doomed. All market timers in the history of time get slaughtered. The belief that you are smarter than everyone else, your signals are better, you’ve been given divine superpowers all are ultimately foiled by the greatest of all enemies: greed. If you’re thinking, “This can’t go on forever!” you’re absolutely right. By “this” I mean both the current altcoin bloodbath AND the monsoon that has been rising all of the boats in the harbor. But both certainly can go on long enough to wreck your portfolio. By developing medium-term, realistic goals for your investments, you will define a strategy that will get you where you need to be. And after adjusting for lunar lambo fantasies, I’d like to believe you’ll be pretty satisfied.
In the coming days, I’ll be publishing some more detailed analysis of the trends covered in this post. If you like what you’ve read, please follow, up vote, resteem, and share on other social media.