This is one of the top questions I get regarding cryptocurrency trading.
How do you know if you’re losing money? Won’t you lose money focusing on BTC value if (insert hypothetical scenario here)?
There are two issues here. The first is that some people don’t understand trading pairs and gaining value relative to trading pairs. The second is that other people don’t trust bitcoin to hold or gain value.
What are trading pairs?
Trading pairs are two currencies, traded against each other. If you were trading GBP and AUD, you wouldn’t be worried about the value in JPY, you’d be focused on growing value within the trading pair.
Example 1:
Trade 1: GBP > AUD
You’d patiently wait for AUD to rise or GBP to drop relative to each other then make a trade back to GBP.
Trade 2: AUD > GBP
You’d now be waiting patiently for AUD to drop or GBP to rise relative to each other.
JPY had no bearing on you gaining value in the trading pair.
They say, “But Ash, I bought my bitcoin with USD! I need to end up back in USD!”
That’s fine. It’s just two trading pairs.
Example 2:
We’ll use numbers for USD/BTC, letters for BTC/ANS (any alt and fiat are the same, just picked one of each).
Trade 1: USD to 1 BTC
Trade A: 1 BTC to 1k ANS ( then wait for gain in BTC value)
Trade B: 1k ANS to 1.2 BTC (then wait for gain in ANS value)
Trade C: 1.2 BTC to 1.2k ANS ( then wait for gain in BTC value)
Trade D: 1.2k ANS to 1.4 BTC
Trade 2: 1.4 BTC to USD (wait for higher USD value if necessary)
This is simplified, but it makes it easy to see that by focusing on using alts to increase your BTC value, you focus on increasing your BTC at cash out. The fiat value of ANS doesn’t matter for your trades, because it’s going to hugely fluctuate; it is going through two trading pairs after all.
Trusting BTC to gain/hold value
You understand the concept of gaining BTC, after all 1.4 BTC is better than 1.0 BTC, yet you’re still asking what about my fiat.
The issue here is your trust in BTC (or ETH if you’ve got ETH-based trading pairs) not you missing the concept of valuing alts in BTC.
You get the idea of aiming for more BTC, but you worry that the BTC won’t be worth USD or as much USD when you get it.
This is the most common issue I encounter, thought they voice it as “what happens if (insert 74 hypothetical situations here)”.
Your uncertainty is not in the soundness of the idea of trading to gain more BTC, but in not knowing if BTC will be worth fiat when you want to cash out to fiat. I trust that it will.
I can’t make you trust BTC.
I can tell you:
BTC has been around since 2009
BTC, while volatile, has an overall strong uptrend.
BTC has crashed due to outside issues but has always recovered nicely.
If a downtrend is a concern, it will be because of major news that you will be aware of.
BTC is not your only exit option, you can also exit the crypto market through ETH, LTC, and Tether.
By delineating trading pairs and focusing on gaining value relative to your trading pair, you maximize your growth. Focus on building BTC/ETH (and potentially LTC) value while monitoring for major news impacting the viability of your primary in your trading pair.
Happy HODLing!
Ash