I was going to title this "TURBOCHARGE your Bitcoin!", but superchargers just look so much better, don't they?
Yes I'm a car nut, I make no apologies for that. I'm also a crypto nut, and now I'm going to combine those two aspects of my personality.
SUPERCHARGE your Bitcoin!
What is an altcoin?
Today I have a new definition of an altcoin for you:
You can use "turbocharger" if you prefer.
"Bit Brain, you've lost the plot. Why are you talking about car parts? I don't get the analogy, this isn't helping me with my trading."
The "supercharger" analogy (and how you can use it to trade)
What does a supercharger do?
In an engine, a supercharger increases the power output of the engine. It acts as a multiplier of the effect of the engine.
This is exactly what a good altcoin does for Bitcoin.
Look at these typical engine power curves. Note how the supercharger multiplies the effect of the engine throughout the rev range.
For some reason the internet seems to have run out of supercharger curve images that are not copywrited. I had to create this one myself, but it's based on how they normally look. But this is good because it allows me to edit it...
Look at the curves again:
Ah! Now you start to understand the analogy!
What am I saying - In simple English without all the engine references
I'm saying that when BTC climbs in value, the altcoins climb faster.
There are certain caveats:
- This is becoming more and more true, previously it was not always the case.
- The altcoins must be good altcoins.
- They might not climb at exactly the same time, sometimes the altcoins lag behind.
How can you see that I'm right? Easy - look at the charts. Start with a reference BTC chart. I'll make all the charts from 01 January 2018 until now. Each chart will have USD and BTC prices on it. (All charts from coinmarketcap.com)
Obviously on the BTC chart the BTC value stays perfectly stable. Only the USD value fluctuates. Now look at some good altcoins:
The important thing to note here is how and when the BTC value changes.
For Altcoins: their BTC value increases when BTC price climbs and it decreases when BTC price falls.
What does that mean?
It means that in general:
- If BTC climbs in value by e.g. 30%, then a good altcoin will climb in value by e.g. 50%
- If BTC drops in value by e.g. 20%, then a good altcoin will drop in value by e.g. 40%
Every time BTC changes price in USD, the altcoin BTC price changes in the same direction as the BTC price change. This compounds the effect of the price change for the altcoin. It gets the effect of the BTC price change in USD, PLUS the effect of its own price change in BTC. This seems to hold true whether prices are climbing or falling.
Take a look at some more examples, compare them to the BTC curve above and see how they are synchronised.
The relationship is clear. Altcoins multiply the effect of BTC. When BTC climbs - altcoins climb faster. When BTC falls, altcoins fall faster!
How to use this for trading:
Since altcoins climb faster than BTC, it makes sense to hold mainly altcoins in a bull market.
Since BTC loses value slower than altcoins, it makes sense to hold mainly BTC in a bear market.
I am ignoring the fact that you could do better in a bear market by going to stable coins (like Tether) or even to fiat currencies, that is certainly also an option, though you risk missing out if crypto prices suddenly jump upwards (this choice might depend on how acutely you feel the effects of FOMO!).
I'm not going to elaborate further or overcomplicate the explanation. Please comment if you have any questions in this regard.
Remember that this is a generalisation! There will be many exceptions!
Yours in crypto,
by Bit Brain