Not All Altcoins React The Same: Why Market Behavior Differs
The understanding that altcoins suffer significant losses when Bitcoin trends down is widely accepted, yet the extent of damage varies. There are different reasons why a particular altcoin may experience more severe losses in a downtrend compared to the rest of the altcoin market. Firstly, smaller projects, especially micro-caps, will usually endure the most pain.
The most obvious reason here is liquidity. If tokens worth millions of dollars are sold for a project with only $10 million in market cap, you will obviously witness a bloodbath. This is why micro-caps often collapse during a bear market, making a recovery very difficult. In many instances, there is no recovery. A severe bear market can be the end of certain smaller projects.
Looking at larger projects, however, is a different scenario, as selling off millions of dollars from a market cap in the billions is marginal by comparison. This is what makes investing in micro-caps so risky. This type of activity can go on for extended periods in a bearish, or even typically sideways, market, which is why I advocate building positions in micro-caps, rather than going all in at once.
Altcoins That Break The Rules: What Makes Them Different
This is, however, not always the case, as a larger-cap project could have just experienced a tremendous surge. In a scenario like this, traders will be looking to lock in gains accumulated over the past few months. You now have additional sellers who are not present in other alts, selling to benefit from recent price action. However, being a larger-cap project offers at least some protection.
Similarly, a micro-cap can experience bullish support from a recent partnership or other news that the market interprets positively. This is when staying in touch with the market is a tremendous benefit. However, at the end of the day, the Top 20 alts will, for the most part, have the most resilience. If you hold altcoins, having exposure to blue-chip altcoins is advisable, especially PoS coins.
Utilize Two Passive Income Streams
Firstly, if you are not taking advantage of all the passive income opportunities in the crypto space, you really need to start researching. This is the dynamic that makes crypto so attractive outside of the insane gains. Utilizing a stream that earns BTC, as well as earning some other stablecoin, is a great way to go. Currently, we are experiencing ongoing drops of 6% to 12%. This has happened numerous times over the past while, and is when you want to utilize earnings from your BTC income stream.
Alts drop harder than BTC, which means that when prices recover, you have an advantage. Buying these dips beats simply buying when funds are available. Waiting for opportune moments can make quite a difference down the line. Essentially, the more dips that you experience, the greater the profit once the particular altcoin hits previous levels or higher. Learning the skill of capital deployment is often underrated in the crypto space; it’s critical.
When To Utilize The Stablecoin Earnings
The second passive income stream is producing profits in one or another stablecoin. This particular stream is to be thought of as more of an emergency fund. Rather, hold these stablecoins during typical price drops and keep using BTC to buy alts, so accumulation continues while you also have a hedge. In the event prices drop 20% to 30% from where you began investing, you can begin allocating stables. This is where you will obviously experience the greatest gains down the line.
You can always use the majority of these funds, since more are being generated, or hold some for another aftershock. As I mentioned, simply buying as funds are available is not the best approach. Waiting for opportune moments and then strategically responding is the better way to maximize your capital allocation. This will require a predetermined plan and discipline to execute it.
Why Choose More Stable Altcoins? My Strategy Explained
So why have I assigned this strategy to larger, more stable Altcoins? Applying this strategy to new and potential projects may cause your capital to disappear over time. The fact that these coins are in the Top 10, or even the Top 30, suggests they are most likely here to stay. If that is true, then they will, at some point, rise and most likely go on to form new all-time highs.
This is the type of strategy that I would apply to Solana, ETH, or even Fantom. I usually go for PoS coins, ultimately increasing my returns by compounding staking rewards. Ensuring that there are as many “multiplication” aspects in your strategy as possible is key to achieving a truly rewarding result. DeFi-based coins and tokens can also be a consideration here.
Final Thoughts On Stablecoins
I am currently earning some modest stablecoin income that I am not yet allocating. I also advocate for a permanent allocation to stablecoin. The percentage of total portfolio value is up to each investor and will largely depend on their risk profile. The Hive-backed Dollars that I earn on Hive are also retained as HBD. It is another way of hedging my portfolio at zero cost.
HBD earns an annual return of 15%, which is rather impressive for a stablecoin. It’s a good idea to allocate at least a small portion of one’s stablecoin holdings to HBD, given the yield it can produce. That yield can also be used to further dollar-cost average into the market.
Conclusion
Personal conviction is very important in the investment world, which is why I get concerned when people ask me what they should invest in. Without personal conviction, what will keep you committed to executing your strategy when times are bleak? Ensure you have the right fuel in your tank because times can get really tough in this market.
Strategy, or more importantly, effective strategies are vital, especially when it comes to investing in altcoins and micro-caps. As this strategy reveals, efficiency is often found in simplicity. The timing and manner of capital allocation are critical to effective investment strategies. This altcoin strategy is based on market stability, cycle timing, and very selective exposure. All the best! See you next time!