How the value of BTC affects the value of AltCoins
Recently, some new members have been asking me about the effects of BTC value as it relates to the alt coins and how the movement of one affects the other. So I want to take a few minutes to outline how this stuff works.
First off, let’s set a baseline for an example. Let’s just assume 1 BTC = $10,000 (USD). Now let’s take some alt coin and call it (XYZ). [note, I would’ve called it ALT, but that coin actually exists in the real world and I didn’t want to confuse anyone]. Let’s also say that the XYZ/BTC pair is currently valued at .1 BTC – or more simply $1,000.
Now, there are literally thousands of variables here, but I want to show you what it looks like if all else were equal, so please take it with a grain of salt and understand that this is for conceptual understanding.
Let’s say some sort of FUD (fear, uncertainty, and doubt) has been released on BTC and results in BTC dropping to $7500. Well, that sucks. But guess what, you’re value of XYZ is still .1 BTC. Granted, that .1 BTC is now worth $750, but you still have .1 BTC. Conversely, if the value of BTC goes up to $15,000, you’re XYZ value has now increased to $1500. I call this relative growth/decline.
If the dollar value of BTC remains constant and the value of your XYZ coin rises, both your dollar value and your satoshi (1 satoshi = 0.00000001 BTC) value also rise. I like to refer to this as true growth.
When the XYZ is growing against BTC at the same time that the value of BTC is rising, that’s when we get exponential growth with XYZ. Some people call this “going parabolic,” “mooning,” “chasing lambos,” “retirement,” etc. A good trading strategy tells you to take profits when this happens and understand when to convert your gains back into BTC or to cash (or stable coins if that’s your preference).
Conversely, if XYZ is declining in value against BTC while BTC simultaneously loses value against the dollar, that’s when XYZ just tanks and drops to the floor. Some would argue this is a really good time to pick up XYZ if the project is fundamentally sound. I will only follow that advice if the charts show it wont drop any further. Otherwise, you’re just trying to catch a falling knife and your losses will be compounded.
So what can we do to benefit from the rise and falls? Besides the obvious of buy low; sell high, a solid strategy is to increase your satoshi value regardless of the dollar value. Especially when looking long term. If I start with .1 BTC and increase my position to a full 1 BTC while the value of BTC continues to decline, I’m not in the least bit concerned. If BTC drops to $3k and I hold 1 BTC, then just imagine what happens when BTC goes to $100k. cha-ching!
A better strategy is to find alt coins that are inversely proportional to BTC. If I can find a project that is going up, while BTC is going down, then my BTC holdings rise exponentially. Again, true growth.
Moral of the story: don’t despair when you see the USD$ value of your portfolio decline. There are ways to truly capitalize on a declining BTC, and even more ways to capitalize on an entire bear market. Risk mitigation, proper portfolio management, and having a professional advisor in your corner is a great start!