Would you like to buy Ripple, Ethereum, Litecoin, or maybe a smaller cryptocurrency like EOS, Blocktrade, Blackmoon, or Substratum? No matter which coin you buy, you should take Bitcoin into consideration before shopping!
If you have long experience in the world of cryptocurrencies, this article will not share any new information with you. But, if you are quite new to Bitcoin and other cryptocurrencies, this article will share some insight with you that is extremely useful and important.
When you walk into the grocery store, you look at the orange price tag, and if you like it, you buy it. If you have strong faith in a company like Amazon and believe they have some bright months ahead, you buy stocks and wait for their value to increase. We are used to doing tasks solely looking at the product we are interested in. But, if you are planning on buying an altcoin in the cryptocurrency market, you better not forget about Bitcoin.
In the end, you are in it for the money
There are lots of idealists out there buying cryptocurrencies because they have faith in the technology. That is a noble thing to do, but for 99% of us, we are in it for the money. We want our money to increase, and we believe that investing money into cryptocurrencies might be one of the best and quickest ways of achieving that.
Let us say that you have read fantastic news about Vechain and their partnerships with BMW, DNV GL, and Pricewaters Coopers. Or maybe you dream of a free Internet and believe that Substratum is a cryptocurrency that has a fantastic future and a great product. You have decided to invest 1000 USD (500 USD into each of them) and you just transferred money to Bitfinex. Since you cannot buy Substratum or Vechain there, you buy Bitcoin, transfer it to Binance, in order to purchase 500 USD worth of Substratum and Vechain.
Before buying you check out some TA’s (Technical Analysis)
If you are brand new to the game you split your BTC amount in two, and spend each half on Substratum and Vechain immediately after transferring the amount to Binance. If you are more experienced, you might check out with your favorite TA experts to see if they have shared something on the matter recently. I am a big fan of Jonas Faa and CryptoRand, and here is an example from both on them of TA charts they recently shared. The first chart is an actual VEN chart, while the second chart is an AION chart.
Stoch completely oversold, combined with a bullish candle after closing under the BB. Now we only need to close the candle green. Waiting for macd to give some bullish divergence. $VEN pic.twitter.com/bkebP46BBW
— Jonas Faa (@CryptoFaa) March 4, 2018
$AION looking awesome here:
– MFI full buy signal
– Breaking out a 3 months resistance
– Bullish RSI heading up
– WaveTrend in buy zone too
– Almost at ATL, great risk/reward pic.twitter.com/9lO88xei0J— Crypto Rand (@crypto_rand) March 8, 2018
If you get a signal similar to any of these, you can know that your investment is supported by TA experts as well. That doesn’t serve as an insurance that your investment will succeed, but it certainly helps you relax a bit after making an actual investment.
But, what have we forgotten? We have forgotten about Bitcoin!
When you do an investment in the crypto-world, you must never forget about Bitcoin. I do have a hope that in the future things will be different, but the way it is at the moment, Bitcoin is crucial to the entire crypto-economy. Here I will explain how in a few examples.
Bitcoin is crucial to all investments in the crypto-world
Let us say that you have 0,1 BTC and you want to invest 0,05 BTC in Substratum and 0,05 BTC in Vechain. The value of a Bitcoin is 10,000 USD, making the math very simple. You invest 500 USD into each of the currencies. You might feel comfortable because both Substratum and Vechain have great news ahead, and TA is even supporting your position. What can possibly go wrong?
On March 8th it looks like this:
- 1 VEN (VET) costs 3,9 USD, which is 0.0004 BTC. As a result, you end up buying 125 VEN tokens.
- 1 SUB costs 0,4 USD, which is 0.00004 BTC. As a result, you end up buying 1250 SUB tokens.
You have 125 VEN tokens and 1250 Sub tokens. All you wait for is for the Dollar value of your tokens to rise, and soon you can drive around in your Lamborghini and plan your trip to the moon. But!!!!
On the following days Bitcoin decreases in value, and suddenly the Bitcoin price isn’t 10,000 USD per token, but 8000 USD. What is the consequence?
- Scenario 1: The price of the VEN tokens might still be the same (in BTC price), but the BTC/Dollar price has suddenly dropped 20%. You are already in -20% with your investment.
- Scenario 2: Even if the VEN price might have increased by 20% compared to BTC, the lower Bitcoin price in Dollar makes the worth of your investment the same as it was originally in USD.
- Scenario 3: When the BTC price decreases, most altcoins go down with it. So, the most likely scenario is that your tokens have lost value compared to BTC (at first), and with a decrease in the BTC/USD price as well, your initial investment is in a minus of at least 20%, but probably much higher.
These are some negative examples, but if the opposite happens, and Bitcoin goes on a bull run, you can actually enjoy a nice Dollar increase when it comes to the value of your altcoins, even if it hasn’t increased anything at all compared to the Bitcoin price you originally bought it at.
For these reasons, I have learned to take a look at Bitcoin and its charts before doing any investment in altcoins.
What if I buy altcoins with Ethereum, USD, Euro or some other coin?
Isn’t there a way around the Bitcoin problem? Wouldn’t it solve all my problems if I bought my tokens in Ethereum, USDT, Euro, or some other cryptocurrency? The answer is no! Let me split my answer in two categories.
- If you buy an altcoin with another cryptocurrency
All coins in the market are influenced by the value of Bitcoin. Since all coins (normally) lose value as Bitcoin goes downwards, it doesn’t matter if you bought your altcoin with Ethereum, Litecoin, Bitcoin Cash or another currency, the USD value of your investment will go down together with Bitcoin. - If you buy an altcoin with a FIAT currency
So, the solution is, of course, to buy altcoins directly with USD or Euro. Those currencies are not influenced by the BTC value, are they? No, they are not influenced by the value of Bitcoin, but the trading value for sure is. Let me share an example.You buy 2 ETH (Ethereum) for 750 USD a piece on Bitfinex and pay 1500 USD. What will happen with the value as BTC goes down? There are lots of so-called trading bots on the market. They automatically trade for their owners, and they continuously check the market for changes and price arbitrage.As they notice that Bitcoin is going downwards, they modify their sell-orders and buy-orders. But, they do not only modify the bids that are directly connected to Bitcoin, they also modify their buy and sell-orders for Ethereum versus Dollar and Euro. Since they know that 1 Ethereum should be worth 0,075 BTC, they automatically make their Dollar/Euro orders reflect the price based on the value of BTC at the moment. The end result is, all prices in the crypto-market are influenced by the movements of Bitcoin. And since they are bots, this all takes place within a few seconds automatically, before you can even understand what is going on.
Why is Bitcoin important when doing an altcoin investment?
I hope this article has helped you understand the position of Bitcoin in the current crypto-market. I personally hope the reign of Bitcoin will one day come down, making the entire market more stable and less influenced by the value of Bitcoin. But, I do not see it coming around in the very near future, but who knows.
Do you agree or disagree with the content in this article? Have you found it useful? I would love to hear from you as you write a comment, ask a question or share your thoughts!
There is a slight difference between buying equities like amazon, and currencies such as cryptocurrencies. With equities, you have 2 schools of thought: fundamental analysis and technical analysis. Rarely will a money manager use them both, *disclosure: but I’ve been far removed from my career in finance so things could have changed, but I find it unlikely.
Then you have your investors who like value plays, and those who like growth. If you are buying Apple or Starbucks, this makes you a growth investor, as these companies are trading for extreme multiples above what they are actually worth. The future is already priced in. With value investing, just by finding a stock, and these are by no means sexy stocks) that has it’s trailing (Price to Earnings) P/E ratio listed as greater than the forward P/E ratio, we know that in the future, earnings per share will increase, or is expected to – which if one fundamental that makes it an attractive value play.
Given that I came from the mindset of a value investor using fundamental analysis, the mindset is 5 years or you should not be in the market. It really doesn’t matter what happens day to day. Those in the know, know that you can’t time the market, so you dollar cost average, buying high some months and low on others.
I believe that the future of cryptocurrencies lies within whether or not the human capital or talent behind each coin is able to create utility for each of the many industries these coins represent, and how effectively they will be able to market this utility to the masses. We will find out soon enough. Though I am by no means an expert in cryptocurrencies, I know enough to cation everyone about participating in each ICO you see an advertisement for. Making money will lie within what the coin can do, and not the fact that there is a new coin nearly every day.