In this episode of Ledger Cast, Josh (@carpenoctom) and Brian (@ledgerstatus) talk about pricing alt coins relative to the dollar versus relative to bitcoin, as well as other technical trading topics.
The information in this podcast should not be construed as investment advice, it is purely educational material and you should always do your own research before buying.
In this episode of Ledger Cast, Josh and I talk about pricing alt coins relative to the dollar versus relative to bitcoin. This is a common question amongst new investors, and getting your head around pricing an alt coin versus bitcoin can be a challenge.
Many investors say they don't believe in charting versus the dollar at all. While I believe it's important to relate profits relative to bitcoin, USD charts can be valuable. In this episode, we talk about this in depth, and I'll also attempt to describe it here, including some visuals.
In addition to discussing pricing in bitcoin versus the dollar, we also discuss general portfolio strategies, when to be in alts versus bitcoin, and when we decide to go to fiat (cash). We also answer some listener questions.
Thinking about gains in terms of bitcoin
When you buy bitcoin for some price — say $10,000 — if it doubles in price, it's very clear what you made. Buying alt coins is more dynamic. When you buy another coin, it is less clear, if your goal is to make more bitcoin.
Why would your goal be to make more bitcoin? Well, if you could just hold bitcoin and do nothing, and make more USD than trading alts, why would you trade alts? So, if you trade an alt, there are two possible benefits:
- Diversity in your portfolio (maybe flawed)
- To make more bitcoin
The reason investing in other coins for the purpose of diversification may often be flawed is simple: bitcoin going down makes everything go down relative to the dollar, usually. However, trading in alt coins can still allow you to make more bitcoin when bitcoin is either down or (preferably) sideways.
Trading alt coins rather than holding bitcoin has potential failures:
- Alt coin can not keep pace of growth with bitcoin (go down versus bitcoin)
- It takes attention, time, and energy (it's stressful)
- You don't get bitcoin fork “dividends”, if not holding bitcoin, which has been valued at something like 30% this year
- You pay fees for trading
- You may be liable for taxes due to trade activity triggering tax events
So you have a lot of potential downfalls trading alt coins. However, trading alts is the most potentially lucrative way to increase your bitcoin, and therefore also your dollar balance of your portfolio.
An example trade to make more bitcoin
Let's say you bought Litecoin for $25, and it was equivalent to .01 bitcoin at the time. If you sell it for $50, you made 100%, but what if it's still only .01 bitcoin? Or what if it is now less than that? You now have less relative-to-bitcoin value even though you doubled your money. If that same dollar amount was just in bitcoin, you would have more dollars and you never had to make a trade.
It is also possible to buy Litecoin for $100 and it be cheaper than when it was $50. So, if you bought Litecoin recently, it was as low as .00561, yet was $96 at the time. It is so much cheaper relative to bitcoin because in the time that Litecoin had doubled, Bitcoin had nearly gone 5x in value.
Taking advantage of market cycles
You can see in the picture above that Litecoin has been its current bitcoin relative price several times this year, yet it's at an all time high versus the dollar. So even though it seems you have have done well, you've only broken even versus bitcoin for much of the year. So, it's always important to know what both your bitcoin relative price is, and your USD price is.
The way to take advantage of this Litecoin trade would have been to buy it when it was in the .01 range and sell it in the .02 range. It made that swing six or seven times in 2017, and could've been exploited to gain more bitcoin — which would allow you to both increase your bitcoin and then of course your dollar value.
Trading relative to bitcoin (if successful), you are able to take advantage of these market cycles relative to bitcoin.
Of course every alt has these cycles, and they make look different. Another we discussed in the show was Monero, due to its very clear cycles. Again in this example, as you can see with the btc relative chart with the orange channel, you could swing trade the market cycles to gain more bitcoin.
Not all coins look like this — Ethereum shows another pattern that's common, where after a massive run, it spent months consolidating versus the dollar, and because Bitcoin was doing very well, it was losing value versus Bitcoin quickly.
In this Ethereum example, the beginning of June was the last time you wanted to hold it, because Bitcoin performed better going forward while Ethereum consolidates versus the dollar.
USD indicators for impulsion
One of the most useful ways I've found to use dollar charts is to discover pending opportunities for impulsion. The Ethereum example above is a perfectly fine example.
In this scenario, you wouldn't want to hold it during that consolidation period versus the dollar. But as the ascending triangle is nearing an end, it's getting close to a decision point to leave consolidation and make a larger move against bitcoin. Because an ascending triangle is a classically bullish chart pattern, the bet to make would be to own Ethereum either before it breaks out to get the full move, or to buy the breakout.
The time frame gearing up to the large move is preparing for an impulsive moment in the chart. Using dollar charts in this way can help us predict when a coin may outpace bitcoin, and allow us to make more bitcoin.
This applies to just about any coin in my experience. Another favorite example of mine is Siacoin recently.
In the Siacoin US dollar chart, the two circles were potential moments of impulsion: the first an exit from the Ichimoku Cloud, and the second as a breach of the prior all time high. These look much different on the bitcoin chart.
On the bitcoin chart, the first timeframe looked like a mega bottom. It's a very different story from the dollar version, which had already shown significant recovery. The dollar chart, in my mind, provided a hint toward further recovery, showing signs of bullishness. Yet in crypto, these bottomed out views often look “bullish” to traders for market cycle reasons, while technically they are highly bearish.
The second circle in the bitcoin chart looks much like the first example in the dollar chart: sign of a promising recovery. Yet by this time with the dollar chart, Sia was in fact making a new all time high. But you can see it has a way to go versus bitcoin to achieve an all time high — because since Siacoin last made an all time high relative to bitcoin, bitcoin's price had increased drastically — making it even more difficult for Siacoin to outpace it.
High velocity bitcoin and alt coin vs bitcoin correlation
There is a common joke in crypto that when bitcoin pumps, alt coins dump, and when bitcoin dumps, alt coins dump. This has often been true, making the joke more painful for your typical alt coin trader.
I relate this to the velocity of bitcoin price action.
I broadly believe alt coin price is inversely correlated to bitcoin velocity more than bitcoin price — and many other people do too; I didn't invent this, but I've tried to verbalize it my own way. At times when bitcoin is mostly sideways, or less volatile, it's possible for alts to outpace bitcoin because trader's are more likely to take money out of bitcoin and send it to alt coins.
When bitcoin is moving very fast, it will be very difficult for alt coins to keep up. Though there are some magical times when bitcoin and alts have both pumped together — but it has historically included massive influxes of new money distributing to both bitcoin and the rest of the crypto ecosystem.
Portfolio management, margin trading, and more
Josh and I talked about much more in the podcast, especially relating to portfolio strategies, but also margin trading concepts and more.
I hope you enjoyed the podcast, as well as the descriptions of our primary topic here.
- Which time frames do we use and why?
- What do we think about Qtum's recent price action?
- Why is the 6-hour chart catching Ichimoku signals so well lately for bitcoin?
- When charting trendlines, do you use the candle body or wick as the boundary?
Ask us a question
Every episode, we'll try to answer one or two audience questions. If you ever have one, just tweet at us or fill out the contact form.
Coin of the week
Josh: Siacoin. He also said “alts are back” when this was recorded… a week ago. It's gone up since recording.
Brian: Stratis. I like it, even though it's still up a ton on the year, there's been pain in the fall and it's been turning. It's gone up since recording.
Find Josh and Brian elsewhere
- Josh's articles on Brave New Coin (must read material)
- Josh's YouTube channel (His Ichimoku series and Indicator series are especially great)
- Josh on Twitter @carpenoctom
- Brian on Twitter @ledgerstatus
Interested in sponsoring?
We'd love to talk to interested parties about sponsorship opportunities. We are open to suggestions, but are not seeking deals that include promos for ICOs, etc. But if you do something interesting in the space and want to chat, contact us.
Music: “Oh, the chains” by Joel Madison Blount