Topic: Macroeconomics and gold/silver, small cap/large cap stocks, altcoins/bitcoin (Read 527 times)

I found that trading bitcoins is really not easy. I tried forex now and the forex market at least values Resistance and support, pivot and all. That makes it at least a little bit predictable. But trading bitcoins is somewhat dangerous i found. You can't really predict it.

Or maybe i did not find out yet how to do it.

1. It's not clear that this is a cryptocurrency bull market. Bitcoin has been bouncing around between 215 and 315 all year and we're at 265. I'd say that we are still in a bear-flat market.

2. Even if this were a cryptocurrency bull market, that would be completely normal. Go back and look at September 2013. Litecoin and other alts were dropping while BTC was rising. Only when bitcoin went parabolic did the other alts follow.

I think the current events show that this is not always true. Bitcoin price is rising and practically all altcoins are dropping in value.

Observations:

1. During the 2013 bubbles when the bitcoin price was high, the altcoins outperformed bitcoin in percentage terms.
In 2013, LTC went from $1 to $50 while BTC, during the same period, went from ~$120 to ~1150.  LTC had nearly 5x the growth. NMC, PPC, and other altcoins also outperformed BTC. Now that bitcoin is low, altcoins have crashed much harder. Some other alts have died completely.

2. The same is true for small cap stocks and large cap stocks as well:
When the price of stocks are high, smaller equities grow more. During crashes, many small caps will crash harder or even go out of business.

3. The same is true for gold and silver. Silver has a much smaller "market cap." During the commodities bull market (a macroeconomic trend) from 2008-2011, silver went from $10-$12/oz to $46/oz. 4x growth. During the same time period, gold went from $700-800/oz to $1805/oz. 2.4x growth.

Discussion:

It seems obvious to say that smaller investments are riskier and more volatile. But most people think of that in terms of events. (e.g. Whether or not a biotech company gets FDA approval for the drug it's working on). What I failed to realize until recently is that this is true on the macroeconomic scale as well:

If cryptocurrencies in general are doing well, then we'd expect altcoins to do even better than bitcoin. If cryptocurrency in general is doing poorly, we'd expect altcoins to suffer even more than bitcoin. The is true independent of individual events or the individual merits of each cryptocurrency.

Conclusions:

If we can identify the beginning of a clear cryptocurrency-wide bull market, it is better to buy altcoins. Altcoins will grow more than bitcoin and it won't matter much which altcoins you own. The market will not be paying attention to the actual features and long-term potential of the altcoins. People will simply be buying everything that has to do with cryptocurrency and the smaller cryptos will go up more.

If we are unsure whether we're in a bull or bear market, owning bitcoin is best. Bitcoin won't crash as much as altcoins and likely won't die. It will still rise appreciably if the market turns bull. When the bull market becomes clear, we can switch to altcoins.

If we can identify the beginning of a clear cryptocurrency bear market, it's best to get out of the cryptocurrency completely. You can risk shorting bitcoin or altcoins, but event-driven short-term volatility can kill you even if you are right about a macro bear trend.