Why is always more profitable to trade alts vs BTC, not vs USD

in cryptocurrency •  7 months ago

Hi guys, the reason I am posting this is because many users are asking me to chart altcoins vs USD instead of vs BTC. I won't be trading or charting any alts vs USD and the reason is simple:

Let's take Ethereum as an example.

If ETH is going up against USD but going down against BTC that means BTC vs USD is doing better than ETH vs USD. Then why would you have your money into ETH vs USD if you know you'll have more profits having your money into BTC vs USD?

If ETH is going up against USD and BTC is going down against USD, this means that ETH vs BTC is doing even better than ETH vs USD. So again, why would you trade ETH vs USD if the profits are bigger in ETH vs BTC?

Any way you look at it you will always make bigger profits if you trade against BTC only.

Any coin going up against USD but going down against BTC equals BTC doing better against USD than that altcoin, then is best to not trade that altcoin & stick to trading/holding bitcoin.

This is the reason I will only use USD to trade it against BTC, not altcoins.

Only when BTC is expected to go down against USD I will put my money into USDT before if I can anticipate the crash. And I will continue to trade the altcoins that are doing good against BTC. Only when BTC and alts are going down against USD I will put everything into USDT & wait for the correction to finish so that then I can buy more BTC for cheaper than I sold.

Makes sense?

Please leave your comments below and feel free to correct me if I am wrong, but so far I find this to be the best logic.

Cheers & see you soon xx

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I'm not 100% sure but I don't think this is strictly accurate. I was researching this topic and came up with some findings.

Let's take one of your examples where ETH is going up against USD but BTC is going down against USD.

Let's say 1 ETH=100 USD today. 1 BTC=1000 USD. The ETHBTC value would be very very close to 100/1000=0.1 (you can verify this with any trading pair).

Now let's say ETH goes to 200 USD and BTC goes down to 500. The ETHBTC value would again be very close to 200/500=0.4
This matches up exactly to what you said. There's a 4x gain with ETHBTC compared to only a 2x gain with ETHUSD. All good, but the story doesn't end there. Eventually our profitability would always be judged by USD values (until the day we won't need to cash out any more).

So the story goes on.

Let's say I purchase 1000 USD worth of BTC when BTCUSD was 1000. That would give me 1 BTC. I use this BTC to buy ETH which is trading at 0.1 (100 USD) and end up with 1/0.1=10 ETH.

In time, the ETHBTC value goes up to 0.4 (situation explained earlier). I decide to sell them and get 0.4*10=4 BTC. That's awesome, I started with 1 BTC, now I have 4.

But is it really?

BTC has fallen to 500 (from 1000 originally). My 4 BTC is now worth 2000 USD.

What would have happened if I decided to save my exchange fees and trade with fiat?

I invested 1000 USD when ETHUSD was trading at 100. That gives me 10ETH. I sell when ETHUSD is 200. That gives me 2000 USD.

Surprise, surprise...this is exactly the same as with the USD ->BTC->ETH->BTC->USD transaction. I gained nothing. Probably lost a few percentage points trading BTCETH on exchange fees.

Hope this helps. Please feel free to punch holes in my theory.

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This is correct.

One may want to see against their home currency (eur/rub/cad..) which often makes more sense.

USDT is an effective holding ground while waiting out volatility.

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This is what I find so confusing about trading with BTC. At first glance it might look like I am loosing money because my altcoin is going down against BTC but it is not because BTC is going up against the USD

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Did I miss something? If you started out with $1000 and end with $2000 you did gain something by effectively doubling your money. Or am I just reading your last part wrong? please explain if so

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No, you're right. The bottomline of my long explanation is that it won't matter. When valued against USD you'll always end up with 2x profit. So it would make logical sense to not waste all the transfer and trade effort.

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People trade Alts vs BTC on the hope that btc always goes high and in the example you explained, when btc tanks, it will eventually go high..so you will have more USD

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dobe4ever, could you PLEASE follow up on this? This comment has contradicted your theory and you have no response? It would be interesting and useful for everyone that has read your article and commented here to see how you defend your argument.

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Alright,
We should assume the the market is going to go up, right? Otherwise we wouldn't be in it, yes? So, While the ETH USD rises over the BTC USD we could assume that BTC USD is also rising but not as much as ETH USD, so when going back to BTC from ETH it would be (overtime) more than it was when you had started investing 1. because you beat the market and earned more using ETH and 2. Because the BTC price (and whole crypto market cap went up as a whole). I enjoyed your post.

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You are so so so right xineohp. I'm sorry I know I'm late to this party, but it's what google gave me. Trading against an unstable currency (BTC) is suicide... well, it's not suicide when everything is 10x-ing, but in an unstable market, you need to normalize it somehow when making trading decisions. If BTC drops 2k in 24hrs, and you see... i dunno, XMR posting massive gains against BTC, you jump in right? Welp... not so fast, you could still be losing money if BTC is falling fast enough in the same period.

This is so much more important if you're trend trading. In fact, if you try to swing trade without normalization, you could find yourself way way up a creek. I was thinking this from the get. Glad there's someone out there explaining as well has you have =) Happy trading everyone.

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The biggest objective to your equations and theory is that if BTC falls usually ETH and the rest fall with it

Good stuff good for me another ideas as part of my learning process keep sharing useful idea, Stay awesome people. Thanks dobe4ever.

Thanks for the post!

I disagree that it's completely useless. One should use the trading pairs with the most volume, as they present the most accurate price data (better yet a combo of high volume pairs, e.g. ETH/KRW, ETH/CNY and ETH/BTC - KRW and CNY pairs account for ≈ 60% volume, BTC accounts for only ≈ 10%)

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what does volume have to do with profit percentages??? You buy/sell for the specific price. If BTC is going up against any other alt then it's always better to not trade that alt and just hold bitcoin, even if that alt is going up against any other fiat, because it means BTC is going up even more than the alt against that fiat since everything is measured against the fiat... its really not that hard to understand...

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One may place trades on the ETH/BTC pair, but when viewing the charts, higher volume pairs are important to view. ETH/KRW and ETH/CNY charts do not look the same as USD or BTC variants, yet they carry much more weight in volume and offer more accurate price data from which one may use in conjunction with BTC variants to make trading decisions and price targets.

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Hi, when you said "If BTC is going up against any other alt ", does it mean the value of the pair ALT/BTC (e.g TRX/BTC) is going down, right?
E.g
-Current: TRX/BTC = 990st
-BTC up against TRX => TRX/BTX < 990st
-BTC down against TRX => TRX/BTX > 990st
is it correct?

Could you guys tell me what does USDT stand for? (especially the final "T")

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US Dollar Tether. Tether is 1 to 1 with USD and since it is an Alt coin you do not have to pay capital gains yet since technically you did not trade an asset into US currency. I would consult your tax attorney of course but that is how I have come to understand it.

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Usd is our fiat currency known as the dollar. Usdt is the 1=1 currency known as Tether. It is a pegged currency that keeps the value of itself equal to the value of the American dollar.

So I should ALWAYS trade into ETH and LTC using BTC not USD? Unless I expect a BTC pullback soon? How often does it make you more money? Thanks!

I personally hate how everyone trades in BTC pairs. I don't keep my trading capital in BTC, and I don't trade to earn more BTC. I trade to earn more USD. If a coin appreciates 50% while BTC appreciates 60%, I still made a profitable trade while missing a more profitable trade in BTC. I don't see why trading against BTC is the goal, unless you have fully removed yourself from the fiat system and pegged yourself solely to BTC. Seeing gains/losses against BTC is useless to me, the goal is more USD. If BTC tanks and you have a sell order in Satoshis on an altcoin, the order could be triggered while the USD price is break-even or even at a loss! Assessing your trades against BTC is not an accurate representation of true trading profitability.

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Thank you! I was thinking that there was something wrong with me. I do not understand their point. It adds a lot of volatility to trade against a coin such as Bitcoin.

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Great counter argument to this! Thanks for posting

It makes perfect sense to trade BTC vs Alt as BTC is the gateway coin that you need to go through to buy most alts. If you have $100 and but BTC with it, you could just hold the BTC, or you could trade alts. If you trade alts and make a 50% profit, that is 50% over the profit you would have made holding BTC.

If you measure success against USD and make 50%,but BTC goes up by 50% in the same time frame, you haven't really made any trading profit as holding BTC would have yielded the same profits.

As I tend to only trade with BTC (and alts bought with this) which was obtained via mining etc and not purchased at any particular price, I would much rather see trades compared to BTC and not USD.

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That is exactly why I made this post. I don't know why people still wants to trade alts vs usd...

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But what if BTC is unstable or falling like a stone?

I don't think the reasoning here is sound due to incomplete consideration of all possible scenarios and conflating separate and irrelevant concepts as supporting arguments for the conclusion.

First, what are we even talking about, precisely?
"alts vs BTC, not vs USD"
What "vs" means here is maximizing BTC as opposed to maximizing USD.
Just being clear about the topic so we don't talk past each other or have these words mean different things to different people.

Short answer 1:
If BTC drops against USD (i.e. USD rises vs BTC), then all your alt gains relative to BTC is not worth a lot of USD, which is what you care about for purchasing stuff - at least until the real purchasing power of BTC becomes better than USD purchasing power, widespreadedness, and acceptance (effectively "replacing" the dollar or at least gaining the same status as USD in terms of acceptance as a currency to do commerce with).

Short answer 2:
If every alt coin was available to trade against USD, not just BTC, would you still be saying the same thing?

Long version:
If you have 3 entities, USD BTC ALT (e.g. ETH), then you can have the following possible rankings for percentage change.

  1. USD > BTC > ALT
  2. USD > ALT > BTC
  3. BTC > USD > ALT
  4. BTC > ALT > USD
  5. ALT> USD > BTC
  6. ALT > BTC > USD

You described scenario #4 and #5 in your 3rd and 4th paragraphs respectively.
You cherry-picked 2 out of 6 possible scenarios and said it was all the scenarios, but didn't take into consideration the other 4 scenarios, which may (and does as will be described) undermine your conclusion.

The conclusion you made is this:
"Any way you look at it you will always make bigger profits if you trade against BTC only."

A word of clarification here:
"against BTC" means trading something priced in BTC, NOT choosing to hold BTC.

In the 4th paragraph aka scenario #5, where ALT > USD > BTC, the profits in terms of BTC may be higher. But if the real purchasing power of BTC is lower than the real purchasing power of USD, then your "greater profits" in terms of BTC is only in terms of BTC, which if it goes down, is not providing you with more purchasing power (i.e. real profit).

Another point:
You do mention the case where BTC going down against the USD as an overall trend.
But in principle, you should care about it at every point at every level, not just the overall trend.
The price decision is based on things in the moment, just like every trade is.
Why be sloppy and approximate about the BTC/USD levels? That affects your actual value.
Would you be sloppy about a 10% difference in a trade, or does slippage and fees actually matter? Of course they do. So would the fluctuations in BTC/USD in real time.

"I will put everything into USDT & wait for the correction to finish so that then I can buy more BTC for cheaper than I sold."

What you said there has nothing to do with trading ALTS against BTC vs trading ALT in such a way that is priced in terms of USD.
That is trading and timing decisions, just like when you say "Then why would you have your money into ETH vs USD if you know you'll have more profits having your money into BTC vs USD?"
First, you don't know what will rise or fall. That is the nature of trading, reality, and predicting the collective decisions of all of the relevant agents affecting the price of things.
Second, to say "you should have invested in the thing that went higher" has nothing to do with what your goal should be.
This as a supporting argument for maximizing BTC as opposed to USD is a complete non-sequitur.

The true ultimate goal is to maximize purchasing power.
It's messy, but for now, it is largely USD.
Prices of most goods are far more stable in terms of USD.
Most things can't even be bought for BTC presently.

So as long as maximizing USD more closely adheres to maximizing real purchasing power, no matter what you trade, whether it be stocks, commodities, BTC, Alts, etc., you should be concerned about maximizing it in terms of dollars.

Eager to hear your thoughts.
And props for raising the topic.

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Great reply and thankful for initial post as I was considering it as well and we're all here to get better (both in our trading philosophy and financially).

What I'm trying to decide in how to play these pairs and I think I agree with the original author on better to pair with BTC when you're in the 'trading mindset' but also agree with the replier (that a word?) that my end game is USD. So what I'm trying to decide is how that will play out over time? And we all have to make presumptions on what they believe and I'm in this camp:

  1. USD is least volatile of any option and is my end game to eventually convert to
  2. BTC is the less volatile, as compared to any other crypto and could be seen as the 'safest' investment in the crypto market today
  3. Altcoins are most volatile of the three options and should be handled primarily as shortest term investments and only used a short term winners until they are not

So my questions are:

  1. Is it worth to convert to the altcoin (including fees) for a short amount for time while it outperforms BTC and the convert back when it's underperforming BTC (including another set of fees)? Both ways of exchanging performance are assumed here.
  2. Is it also worth the time to manage all of that back n forth AND/OR is there a gap that makes sense to trade and not trade? (10% diff, 25% diff?, etc)
  3. Will the erosion of all the trades and fees just eat away any gains I made and what's the point to just HODL BTC instead long term?

I would also say that I'm not wanting to day trade either. I'm willing to watch daily and buy the big dips like last week (20-40% swing) mainly cause I don't want to get divorced. Hah! Again thanks for the original post and well thought out reply here.

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I don't have answers to your questions, but I feel like Statement 2 contradicts Statement 1. If USD is the least volatile, than USDT (Tether) technically would, by default, by the "safest" crypto. Right?

good explanation. thank you for your posting

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At the end of the day, it all depends on how you are measuring your "success" in trading. Are you looking to get rich and be able to go buy all the things you want? Then all you really care about are the USD pairs... Why would you care how something is trading against the BTC? You would just have to convert the BTC into USD anyway in order to spend it (unless you are buying things online using BTC). I for one am a speculator and looking only to make some USD so I can go and buy normal things in my everyday life. Thus I don't care how IOTA/BTC is doing... I only care how IOTA/USD is doing.

True, but given the value of BTC is no longer that promising, may be best to stay away from BTC altogether?

What if ETH > BTC, and BTC > USD? Shouldn't you pair ETH with USD in this case?

I was always weary and curious about this BC I never know what to do in regards to taking my profits from
My Alts that are going up when BtC is going down. Thank you so much for the helpful insight.

I disagree that we should be trading against bitcoin and not a fiat (USD) currency. Would you trade Microsoft based on the price of Apple? In other words if Apple loses 50% of its value should it take Microsoft down with it? It makes no sense, especially since the value of Bitcoin is highly volatile. The result of this is when BTC price rises/drops, the value of all other Alt-coins do the same. This in turn tells us nothing about the true value of either currencies. It only tells us the value of them in comparison to each other. In my opinion, in order for any of these currencies to become mainstream (used as a daily currency) the exchanges must be based on fiat currencies. Should the value of some joke alt-coin soar to millions of dollars in market cap simply because bitcoin went to the moon? I don't think so and this is a problem that is getting in the way of the long term viability of cryptocurrency in general. My two doges!

Great article! been trying to figure this out for a while. After trading on bitfinex and binance, i've finally decided that it was too much effort to profit from trading on binance using ATL/BTC pairs. Using USDT pairs on bitfinex is much easier.

At the end of the day, if i want an alt coin that is not on bitfinex, i buy it on binance and hodl it. If i want profits from trading, i just use BTC/USDT since its so volatile the profits are much greater than trading alt coins. Besides, look at the trends, most Alt coins follow right after BTC anyway. Adding ALT/BTC/USD to the mix just makes trading slower, i'd rather keep it simple with BTC/USDT.