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

in #cryptocurrency4 years ago (edited)

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.


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.

no its not correct..

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

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

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.

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 you will have more USD

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.

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.

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.

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

this was correct 7 months all alts follow btc