As Bitcoin has finally broken through the 4000 USD price level, many investors seem to be exiting some of their other positions to hold Bitcoin.
While this was pretty common in the cryptocurrency market back in 2016, we haven't seen a correlation like this very often so far in 2017. As the price of Bitcoin continues to rise, money seems to be coming from within the cryptocurrency industry rather than from outside additional investment like we have seen throughout much of the past 6 months. This is not a bad thing in my opinion, and even presents some very interesting opportunities to take advantage of these price inefficiencies caused by the 'rush' to hold Bitcoin. While I have loved the gains I have experienced from holding some Bitcoin over the past week, I am much more excited about the opportunity to take advantage of the low prices of that the rise of Bitcoin has created for many tokens. I will not be discussing which positions I intend to enter into specifically in this post, but rather why individuals shouldn't be concerned with the drop in value of some of their other cryptocurrency holdings.
The ERC20 EOS tokens have been trading at around 1.60 USD for a good portion of the past day on Bitfinex, which is actually less than the average price per token from the token distribution contract directly. This leads me to believe that individual believe that they will experience greater short term gains from holding Bitcoin, even if it means taking a small initial loss in order to acquire their Bitcoin position. If an individuals would have don e this at any point yesterday, it would have likely already proved to be more profitable. I did this with some of my holdings last week, and will be able to acquire almost 20% more tokens than the amount I sold. While this Bitcoin run has been great for holders of Bitcoin, it is likely to not last forever. I have no idea on how long or high it will go, but at some point a minimal retreat is bound to happen. As the price of Bitcoin continues to increase, it will be interesting to watch for any major changes in the overall market capitalization of the cryptocurrency industry as a whole.
In the past when the price of Bitcoin would increase, the value of many other alt-coins would also increase along with it. The total market capitalization would increase significantly during large Bitcoin runs, but the market capitalization has remained between 130-140 million for the majority of the past few days. This leads me to believe that the additional investment into Bitcoin is coming largely from other positions within the cryptocurrency industry, and it will be interesting to see if we are able to identify and major increases in the levels of new capital invested into the market.
Will the next Bitcoin retreat be different than Bitcoin's retreats in the past?
I don't have any idea when the price of Bitcoin will experience any kind of significant decline, but I have to assume that it will experience some form of retreat at some point. In the past when Bitcoin would experience a price retreat after a major price run, the overall market capitalization of the cryptocurrency market would drop which signaled individuals were removing their capital from the cryptocurrency market as a whole. I have a feeling than after Bitcoin's momentum appears that it may be changing, ,many individuals will move their holdings into different positions within the cryptocurrency market rather than moving the money from the market as a whole. While there may be some individuals who pull their profits out of the market, I assume that many projects that have experience price declines will regain their prior price levels once again.
While this is solely my opinion, I try to take advantage of good opportunities to increase my stake and positions in the project that I have a stake in. A drop of 20% in value may scare of some individuals and new investors, but I am unshaken by these types of events because I know the potential value of my holdings in the long term. At the very early stages of the market that we are in, the potential for growth remains extremely large regardless of the specific price point in which an individuals acquires their stake. One of the biggest things to remember when opening a long term position is that price drops and declines are bound to happen, and that liquidity should not be a concern in the early stages of a platform.
While any token would experience significant gains after adoption, the amount of stake an individual is able to acquire before adoption becomes so much more important. Many individuals try to 'play' the market to increase their holding and stake in their desires tokens, and others simply buy and hold for the long term. At this point I do a bit of both, but I believe that a diverse range of investments is the best possible protection from the volatility of price level of any token specifically. Anyone who is attempting to give insight into when the Bitcoin price run will end should be questioned heavily because it is likely simply speculation, but after the price run slows down we will see a serious increase in investment in many different tokens within the cryptocurrency market. I personally believe that acquiring additional stake in the projects and networks that I have positions in before the price of Bitcoin begins to drop will be the most successful, but I would also run the risk of loosing out on additional potential gains of the price of Bitcoin.
I really hope that you enjoyed this post, and I urge you to leave any comments, questions, input, ect. in the comments below! Thanks for the support and for reading!
Please note: Absolutely nothing in this post should be taken as financial or investment advice in any capacity, but simply stating my personal opinions. Diligent and sufficient research should be conducted before entering into any investment position.