The party is over... for now.

betterthanmoney (25)in #bitcoin • 6 years ago (edited)

The party is over for now, as many cryptocurrencies correct from their all-time highs. Now is the time to buy deals and look for correlations.

As larger investors started to take profits, BTC began to falter. It was time to find the next new shiny object… Atl coins!
As capital moved out of bitcoin and into other assets, we saw the end of one short-term cycle and beginning of the next. Starting in early December, a new cycle began and the "cheaper" Coinbase assets stole the show.

Capital that initially entered the crypto markets through BTC was finally comfortable with the crypto space and willing to move out on the risk curve. In other words, it was time to play with house money.

The newer retail entrants cared less about fundamental protocol strength and were easily lured into a protocol's marketing pitch. As the price reached all-time high large investors again began to take profit and cryptocurrencies as a whole, helped by bad press again began to falter. This folks is the BTC cycle.

CONTEXT
The BTC cycle is usually triggered by a legitimate change in fundamentals. And then, subsequently, it's taken to the extreme by investor behavior. In 2017, it was smart contract functionality and ICOs. Now, after BTC fees creept up and both it and ETH faced their first scaling issues, most of the coins that have increased in price are aiming to be cheaper, faster or more scalable have now given back most if not all of their gains. What we're actually seeing is a mini-Gartner hype cycle play out around a new market theme or narrative.

New technology captures investor attention. Emotional influences cause investors to follow the herd and fear of missing out wins out. The cycle gets taken to its extreme until it can go no further. And then there is a correction to all the price and expectations. When it hits the correction often displays predictable connections between the price of BTC and other cryptocurrencies (known as Alts) as prices find equilibrium. The strength of the connection between BTC the Alts and this cycle is the Correlation or the measure of mutual effect of the two phenomena.

WHAT HAPPENED?
BTC fell for the past two weeks and while the downtrend has been strong it has not happened without swings, this means for now at least volatility has decreased and markets are beginning to move sideways. So why does this matter? Well if we look at Positive and Negative correlations we can see how things typically play out between BTC and Alts.

LAST THOUGHTS
Negative Correlation - As the demand of Bitcoin rises, Bitcoin will get more expensive and with that people will want to buy more Bitcoin and possibly earn on the base of day-trading. Many of these traders utilize trading software to trade for them, aka. The trading-bot. These bots mostly follow the same tools for trading as the human counterpart. As the price of BTC goes up traders (human and bots) leave Alts to catch the rise in BTC, driving the price of Alts down. That is how negative correlation works.

Positive Correlation - A recent example is the positive correlation between cryptocurrencies and government regulations. Global demand for cryptocurrencies drops, when government regulations are placed or when a government official makes a anti-cryptocurrency statement. The government regulations act as a mutual influence factor that move in the same direction. That is how positive correlation works.

CONCLUSION
So what relationships do we observe? Well for starters there is no such thing as a rule without an exception and this market is exceptional at proving that. However, with some basic Technical Analysis behind these general rules one can do very well in the accumulation of a diversified crypto portfolio.

When BTC goes UP / Alts go Down (Negative Correlation)
As the demand of Bitcoin rises, Bitcoin will get more expensive and with that people will want to buy more Bitcoin and possibly earn on the base of day-trading, which although it is very unsafe way of earning remained one of the most popular ones. That is how negative correlation works. (This is the optimal time to buy as the purchasing power of your BTC is enhanced)
When BTC goes Down / Alts go Down
As BTC is the base pair for most Alts it reasons that when its price drops the price of its pairs also do so from a FIAT value and this creates a bearish market that drives selling due to fear of a fall of the underlying asset. (Also a good time to buy if you were holding BTC for the falls, here one needs to look at the relative difference in drop and realize that a disproportionate loss of value by the one Alts versus another versus BTC represents a swing trade opportunity as the price will recover to proportionate movement with BTC)
THE MORAL: When BTC is unstable / Alts go down
This goes back to FUD (Fear Uncertainty and Doubt) News, Regulation, Fraud, all play a role in market instability. With this in mind one has to know that positive instability creates a drive towards that which is most “safe” this is certainly the case with BTC. So it’s not so much that instability make Alts drop but that that capital will seek shelter from it in BTC, USD or USDT. And this creates FOMO (Fear of Missing Out) on the way up and Fear selling on the way down.
When BTC is stable or moving sideways / Alts go Up
Finally, the price settles after some of our regularly scheduled volatility and the market begins to move capital from BTC over to the alts as stability brings confidence to the market and especially new buyers who are now more willing to catch the rising tide of the Alts as BTC becomes less “exciting”.

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