3 Reasons Why Cryptocurrencies Drop When BTC Hits New Highs & How to Take Advantage of That
Don't panic when your holdings in Ethereum, Litecoin, and altcoins drop as Bitcoin goes on explosive runs.
The cryptocurrency market has several aspects that affect each other in different ways.
There are several coins with price points that tend to correlate with Bitcoin (because it's the market leader).
They rise and fall as it does. However when** Bitcoin goes parabolic** these coins tend to get left in the dust (more on that later).
Coins that are usually tied with BTC are Ethereum ($ETH), and Litecoin($LTC).
Then there are Altcoins. Altcoins are paired with BTC as well and when BTC is healthy, they can be healthy as well. Altcoins and their relationships with BTC are much more complicated however because not all of them have proven themselves (there are over 1300). Many Altcoins have earned reputations as "Pump n' Dump" coins.
Cryptocurrencies react in several different ways to Bitcoins price movement. When bitcoin finishes a meteoric rise like this for example: that's the time I buy as many altcoins as I can. They're typically at great prices due to money flowing out of them and into Bitcoin.
It should go without saying that you should never buy anything without doing your own research.
I'm not financial advisor, these are all just ramblings from my experience trading in this market.
I write about cryptocurrency in hopes that others will learn from my mistakes.
When I first started treating investing in cryptocurrency as a skill that I had to hone and not a hobby more reminiscent to gambling than educated investing. I was told by several people I consider much smarter than I that I was going to have to learn a few hard lessons.
I kid you not, everyone I
spoke to about trading in crypto told me pretty much the same thing.
- We'll give you some tips, but you're going to have to learn from your own mistakes.
- You wont truly learn your lesson until the mistake that teaches it to you costs you a lot of money.
So far, I've definitely made my share of mistakes, they haven't lost me touch much money just yet so hopefully I can help you try and avoid the same pitfalls.
Here are 3 reasons that ETH, LTC, and other Altcoins are dropping in price as BTC sets new all time highs.
1. FOMO
I personally see it as sort of a rookie move but when Bitcoin starts to explode as it has (and seems to be continuing to do so), money floods out of other currencies.
Investors get FOMO and move all their money into BTC hoping to catch some of its meteoric rise.
The problem with that being that Bitcoin is erratic at best. It moves with high volatility and FOMO'ing into a trade is often a recipe for disaster.
*There is a great beginners guide for cryptocurrency on reddit. This segment from the guide goes into *FOMO and the benefits and drawbacks it may have.
This goes against one of the most famous trading mantras of all time.
"The time to buy is when there's blood in the streets." - Baron Rothschild $crypto $BTC
Look what happened the last time people FOMO'd into Bitcoin.
There should be a twitter sentiment indicator showing negative correlation of positive outlook on $btc to its price.
When everyone is this happy, you know a big correction is in the making.
Case and point: pic.twitter.com/NbN4ULO45R
As Bitcoin reached its all time high it went from a record breaking 11.5k to 9k in an instant.
This happens at a time when Coinbase is also receiving such a heavy influx of users that there service has experienced several interruptions during the past couple weeks.
It breaks my tiny little heart to think of all the excited newbies to crypto who FOMO'd in at 11k only to watch their money drop in value by $3,000.
Well, for the people that sold at least. We're at a time in crypto where this bull run we're on is unprecedented.
The world has never seen a market go on an uptrend like this in the history of financial markets.
For those of you that bought in at a high price right before the dip, I hope you held, considering the price is now just over $14,000.
That's the thing with crypto. One must remember, the second most famous trading mantra in the crypto community, and meme of legendary acclaim.
HODL.
Sidenote: This is why I love the crypto community. I traded stocks for a year or so and the online community was cool and all, but I feel like I've found my people in the crypto community. Its fueled by memes and something I don't have time to get into called, "shtposting"*
2. BITCOIN IS THE MARKET LEADER
The majority of Altcoins are dropping right now, not just Ethereum and Litecoin.
These are the top 10 market cap coins as of Wednesday Dec. 6, 2017. 9:52 PM PST.
You'll notice that all of them, except for bitcoin are down.
If you look at the top 20 market cap coins, only 3 are up.
If you look at the top 50 coins 20 are up.
That's not so bad when you look at the top 50, but think about it. The top 10 market cap coins have a significantly larger accumulative value than the 40 coins following them in the top 50.
So one might think that when BTC breaks all time highs, the money that shoots its price up has to come from somewhere.
This image is a screenshot from CoinMarketCap. An invaluable resource to both learn about crypto, and monitor important data if you want to start trading/investing.
The value that flows into Bitcoin when it breaks ATH's like this comes from the other coins in the market. ETH & LTC don't usually get it as bad as some of the smaller market cap coins.
The good news is, that means there a flash sale on Altcoins!
Once I've confirmed that they've bottomed out I start to buy up new promising coins as well as accumulate more of some long term holds I have.
Happy to point you in the direction of some additional learning materials you can check out if you're looking to get serious about this. I'm also in a Discordserver with some trading buddies where we discuss trades and look for coins that are about to breakout.
3. BRAND RECOGNITION
Regardless what your opinion is on BTC vs all the other cryptocurrencies out there, you can't deny that BTC is by far the most popular and well known coins.
Hell, I can use the words "Bitcoin" and "Cryptocurrency" with most people and they think it's the same thing.
This means that when new money floods into the market, which there has been a HUGE influx of in the past few weeks, is more than likely to put their money into the coin they've heard of the most.
If you want to join the Cryptocurrency Discord Server I mentioned earlier
We're always looking to connect with others in the space, and help people looking to learn.
Don't forget to introduce yourself! My username is RezaJates#5824