Why Bitcoin is a SUPERIOR Investment Over Altcoins Now

3년 전

Script(ish)

Today we’re going to talk about the rise in Bitcoin’s dominance against altcoins and why I still believe Bitcoin to be a superior investment at this time. Ever since the start of this massive cryptocurrency gold rush in March of 2017, there has been cycles where altcoins drastically outperform Bitcoin and Bitcoin drastically outperforms altcoins.

The easiest way to keep track of this is through CoinMarketCap’s Bitcoin dominance chart. As you can see, March to June was a period where altcoins crushed Bitcoin. Most notably, the Flippening almost occurred. However, Bitcoin rapidly recovered some of its dominance and there was a period in August where every single day, it felt like Bitcoin would go up and altcoins would get slaughtered.

The real pain for altcoins came in October though, where Bitcoin broke through $5k. The Bitcoin cycle ended in the beginning of December, and since then we have seen a steep drop in Bitcoin’s dominance from a peak of 65% all the way down to 32% before recovering to where we sit now, around 39%.

Generally speaking, I’ve always found it to be best to position yourself on the side that’s out of favor. There is research that was done by renowned economist Richard Thaler and Nobel Prize winners Fama & French that have illustrated over the long-term, contrarian strategies tend to work because of a very simple principle called reversion to mean. However, you don’t need to be an economist with tons of empirical evidence to understand why this happens.

In my opinion, this occurs due to the fickle nature of investor psyche and the way the voice of the crowd works. In the cryptocurrency space, this is even truer than it is with stocks because prices are more volatile, the market is relatively new and the investors involved are generally younger, less experienced, less wealthy and desperate.

What I’ve seen happen time and time again is that when we are in an altcoin cycle, Bitcoin is claimed to be dead and an outdated technology and while we are in a Bitcoin cycle, the Bitcoin maximalists come out in full force.

I remember recommending Ethereum on this channel back in October when it was trading at around 5 million Satoshi. Recall that we were in a Bitcoin cycle back then, so Ethereum kept going down and there was a Bitcoin maximalist on Twitter that would send me the ETH/BTC chart every single day.

I recommended Ethereum again on Dec. 5th at around 3.9 million Satoshi, from which it fell to a low of around 2.4 million before eventually skyrocketing back up. If you go back to some of my earlier videos, you’ll also see that I recommended altcoins frequently as we saw Bitcoin receive all the focus due to the Bitcoin Gold and Segwit2x hard fork hype. That may not have panned out in the short-term, but it ended up working out well once December rolled around.

They say being right at the wrong time is the equivalent of being wrong, but they often say that when referring to cycles in the stock market and the economy which take years to play out… so being wrong can result in drastic underperformance for very long periods of time which usually results in clients leaving your firm.

Fortunately in the cryptocurrency space, cycles appear to happen much more frequently and usually only over a period of a few months, meaning if you’re right at the wrong time, it doesn’t take long for the market to catch up. Note that the cycles between Bitcoin and altcoins have existed for years, but those cycle swings have become much more extreme now which means better opportunity for us as investors and swing traders.

With Bitcoin Segwit adoption increasing, Coinbase and Bitfinex being the latest on-board, we’ve seen a drastic fall in the average fees on the network. It’s worth noting that a principal reason for why fees have fallen is because Bitcoin transaction volume has plummeted, although on the plus side, the number of outputs per transaction has been increasing which signals more service providers are implementing batching.

Now one of the biggest narratives for why altcoins have been rising in dominance was due to Bitcoin’s sluggish and expensive transactions… but both of these factors have become substantially less problematic, partially for the right reasons (AKA Segwit and batching adoption) and partially for the wrong reasons (AKA network load has decreased).

However, I don’t think the majority of market participants are looking into the “why” and only focus on the end-result, which is that Bitcoin is finally becoming more suitable as a payment option again. Who knows whether or not companies like Valve will start accepting Bitcoin again on Steam for example, but it is less likely that merchants that are currently accepting Bitcoin will drop it as a payment option.

At this point, it’s still safer to accept Bitcoin as a form of payment than any other cryptocurrency due to familiarity, dominance and maturity. I’ve stated before that realistically the only serious reason a merchant should accept any cryptocurrency is to increase sales through marketing hype, not because it offers any serious advantages over alternative payment methods.

I know that probably pisses some people off, but the reality of the situation is that between the lack of clarity surrounding accepting cryptocurrencies as payment and its impact on a company’s books, its impact on taxes, the legality questions surrounding it, security, the frustration of dealing with returns and the insane volatility in the market, accepting most cryptocurrencies is generally going to be a hassle for the overwhelming majority of business owners and I still think the most valid reason for accepting them at this stage for Ma & Pa businesses is so that cryptocurrency enthusiasts spend a few extra bucks at your store.

Obviously this isn’t true for all business owners, particularly the ones who are familiar with cryptocurrencies, but it’s going to be true for most. If you’re relatively unfamilar with cryptocurrencies, you’ll probably want to default to the one cryptocurrency that everyone actually talks about which is Bitcoin. Even at this stage, most people have only really heard of Bitcoin and don’t know what a cryptocurrency is, or Ethereum or Ripple or Litecoin or anything else. That familiarity, along with the fact that Bitcoin has been around the longest, will still lead to higher adoption for it over other cryptocurrencies specifically as a payment option.

But in all honesty, I don’t think adoption is the key factor that is driving these cycles between altcoins and Bitcoin. When altcoins rose in dominance, it had very little to do with adoption and more to do with marketing hype. The more a coin promised, the more money that was pumped into it. Partnership announcements would cause a coin to soar, even if that partnership was relatively unimportant or preliminary in nature.

The same was true for Bitcoin during its last cycle in October. We had just recently lost China, one of the biggest sources of Bitcoin trading volume and people were buying into hype over a fairly obvious joke fork, Bitcoin Gold and the community splitting fork, Segwit2x. To this day, I would say no one can say with any degree of certainty why Bitcoin rose to $20k from November to December other than momentum and hype.

These cycles seem to occur as a result of a shift in the voice of the crowd and an increased number of bagholders on the wrong side of the cycle. In my view, this is how cycles shift:

The first group to move over is the people who suspect that a new cycle has begun and who aim to get back in to their original positions at lower prices later on. The second group to move over is momentum traders, who will generally wait for a strong sign that we are definitively in a new cycle before moving their assets over. For example, this group may wait for Bitcoin dominance to rise over 40% and show some stability over that level before moving over.

The third group is more of a wave, which is the bagholders who see other people moving over and making more money than they are. Once this wave completes, the cycle is over and we move back the other direction.

Some of you might be pointing out that there are times where there are clear paradigm shifts in market dominance, as we saw in March of 2017. What is to prevent such a situation from occurring again? Why can’t the long-term dominance of Bitcoin fall to 25%, or 15% or 10%? This is especially true when you consider a major reason for Bitcoin’s dominance is the fact that it provides the most liquid trading pair against all other cryptocurrencies, but more exchanges are announcing that they would like to add fiat-gateways to altcoins.

My short answer is there is nothing stopping long-term dominance from falling to 25% or lower – it is a very plausible and possible reality. However, I suspect that we are still too early stages for decentralized apps to take off based off what we’ve seen so far:

If Crypto Kitties is the best we have to offer at this stage, then we’ve got a long way to go for the quote-on-quote “Web 3.0.” Cryptocurrencies that are aiming to become payment options will struggle against Bitcoin for reasons I discussed earlier regarding familiarity, dominance and maturity.

In other words, while a lower long-term dominance for Bitcoin is certainly possible, I suspect it is likely far enough away that it isn’t relevant to any trading decisions made now. Furthermore, if we’re looking over the long-term, while it doesn’t seem likely a Bitcoin ETF will be approved this year, it likely will be at some point over the next 5 years which should result in a whole new surge of capital and liquidity for Bitcoin. Note that the problems the SEC discussed when it came to Bitcoin ETFs are even worse for other cryptocurrencies, meaning it isn’t likely we see any ETFs for cryptocurrencies aside from Bitcoin for a while.

In summary, I still see Bitcoin as a superior investment over altcoins even despite dominance rising to 39% recently. Given Bitcoin has traded in a range recently between 32 – 39%, I would probably recommend waiting until a clear break over 40% dominance for those who haven’t already allocated themselves to Bitcoin in preparation for a cycle shift. In other words, I would probably aim to be part of group #2 at this stage since the ship has sailed on being part of group #1. And the best advice I can ever give is try to do your best to never be part of group #3, AKA the buy high sell low group.

I hope you all enjoyed and would love to hear your thoughts on Bitcoin vs. altcoins.

Authors get paid when people like you upvote their post.
If you enjoyed what you read here, create your account today and start earning FREE STEEM!
STEEMKR.COM IS SPONSORED BY
ADVERTISEMENT
Sort Order:  trending

Great topic!
It's true when there's blood in the street....there's money to be made.
This market isnt full of investors...but mostly speculators.
Swing traders...Day traders.
People trying to hide money in Tether to limit loss.
(That in itself will implode one day)

Investing isnt a video game,and you nailed it ..contrarian strategies tend to work in downturns or expected ones.
Too many people get caught up in what's "hot"
Or what coin is being shilled today.

It is a young investment class in this market,note it was somewhat alike to the Tech Bubble was in the 90's.
-anything .COM made money...alike blockchain
-people invested with no due diligence (still relevant today)
-mostly speculators,day traders (same)
-a ton of investment 'gurus' back then...as is now.

Seems like History does repeat itself.

From my year of investing in crypto...ive noticed Bitcoin is the one coin to always keep in anyone's portfolio...
-Now it costs .12 to transfer (basically negating BCH main advantage)
-is still going to be the "one" crypto currency everyone knows.
-Is the one currency Wall st seems more interested to be invested in than any other coin (Sorry Charlie Lee)
-Volatility creates those different classes of investors you spoke of....though i must admit ive seen more of that last class (buy high/sell low) in this market than any of the years ive worked in the stock market.

My advice to anyone just starting is..
-Be careful,invest your starbucks cash not your mortgage money
-Think of this market like a day at a penny casino,expect to walk in with money....and expect to lose it all
-Do your research,there are quite a few fascinating technologies but some...well...that honestly haven't even been developed yet...in other words..it's just a concept. Though cool...doesn't mean you'll be making any money on that idea.
-Be aware this is a market where theres no regulation...shady exchanges...and full of dump & pump groups. So take everything you see & hear ..with a grain of salt (do your homework)
-If you're looking at your Blockfolio or Delta (much better) too much...means you definitely need to reevaluate your portfolio..OR you might not be cut out for this volatility.

Bitcoin is the king...we need it in this market more than anything...when it drops...everything does.
Build yourself Alt coin tier 1 to help throughout the upcoming pain in your portfolios (NEO/ETH/LTC etc)
Do your own research,read a few books and take a deep breath.

Life goes on.

Excellent video as always.

·

Excellent comment as always! Thanks technical, always look forward to your thoughts.

·

highest risk investment at the moment is crypto.

booya!

There are no altcoin futures contracts and as you point in your commentary, it is unlikely that there will be any altcoin ETFs either. For these reasons I can't see an altcoin challenging BTC for the foreseeable future. Lower fees will also favour BTC over altcoins.

·

The CBOT (which runs the GXBT futures) held a webcast 2 months ago in which they mentioned that they were looking to add more futures for other altcoins. Probably won't happen anytime until the CFTC sees how the bitcoin futures play out for a bit longer.

I like that you view crypto from a realistic standpoint not like most of the other "crypto" YTers and me including...

·

Best investment, no questions asked.

I agree with you on Bitcoin being a safer and overall superior crypto but for some different reasons.
Bitcoin was the pioneer for this type of technology, what doesn't mean much for us who know our stuff but for a wast majority of new uneducated investors it means everything because it became a synonym for cryptos. Many don't even know what altcoins are let alone the differences between them and Bitcoin.
Bitcoin still has its flaws like high fees and scalability, and we can hope that one day it is going to overcome the problems and be used as a payment method in non customer luring shops.
Ps. What are your thoughts for the biggest scam in history of cryptos (bitconect) and are you going to make a video regarding your thoughts on it.

·

For the record, I mention in this video / "article" that most don't even know what the word "cryptocurrency" is, no less Ethereum, Ripple, Litecoin, etc.

I already talked about Bitconnect back when it was still around and I bring it up occasionally. Not sure if I'll make a video to talk about its doom since it's been so long now (in crypto time at least).

·
·

Some time might have passed but I think that a lot of people would like to hear your reactions, and some workings fore similar scams. It could make a interesting video.

currently agree with you, but right now have all my money in the zcl fork/ planning to get out in the next few days

·

Be cautious about putting all your money there, especially since forks and other events of similar nature (e.g: airdrops) tend to fall immediately absurdly after the event, often times enough to cancel any gain associated with the fork / airdrop.

You were predicting a rise in BTC dominance wayback in Jan or maybe Dec and I've been waiting for it. Pretty sure you're right. Whether you are on not doesn't really matter. I watch your videos for the great content and insight. As for the market. We'll see. It'll be fun.

·

Thanks Rob, I appreciate it. And indeed... it will be fun.

Bitcoin : I'm back!
If Arnie doesn't mind :P

Bitcoin is the king.

Its just like Andreas Antoponoulus (did i got it right?) in one of his videos:

Bitcoin is already battletested. All other altcoins, even Ethereum, still have a lot to prove.

As the shift in the markets happens we might see alt coins become less attractive. It is very hard to time these things (you were talking about the shift to bitcoin for a more than a month) but I think it is worth taking the time to research small teams, not to buy (not yet) but to judge the movement of the market.

Where is the money going? What story is the market telling?

The pendulum is starting to swing one way, it is good to be prepared.

Posting the entire script on Steemit is very cool and deserves appreciation :)

Great and accurate article, it looks like we're standing at 41,9 % now.

What level are you expecting until altcoins start their rise again?

One interesting fact to consider in the longer term regarding commercially accepting bitcoins as payment is that the introduction of Bitcoin futures in December can help businesses accepting Bitcoin hedge against the volatility. This is standard in the agriculture business and can be done here. This could assist in increasing adoption in the long term.

Yes Its a good Investment in this bull market. People are getting rich but Bubble is still there.

Very informative as ever. Bitcoin is the majority of any solid investment strategy in cryptos but a decent stake in a smart contracts platform and a smaller stake in the internet of things industry are, in my view good long term buys.

Always appreciate you speaking directly with no fluff

·

Thanks for the kind words.

So are you still predicting a return to BTC 50% or higher dominance? I think the downward dominance trend will continue long-term like you indicate. Sub 25% in the 5 and certainly 10 year timeframe is invevitable. This year I think at least one and perhaps 2 Ethereum flippenings are possible as well.

You are saying bitcoin is the best payment option at this time. Can you comment on litepay? Looks like many people are more bullish for litepay than bitcoin payment.

Great video as always. I do have to say however, that I think that there are cases when investing into altcoins might be a better option. I live in a rather poor country (compared to the USA or UK) and I am a student as well. For these reasons I have a very small budget. I would say that the budget is small even given where I come from. Being a student studying informatics I can safely say that my current budget will not on its own make a big difference in my life and therefore I am willing to part with.

Therefor I think that is more reasonable for me to bet on several altcoins with a good team and a clear vision than on BTC or ETH. The reason being simply that even if BTC or ETH made a 60% gain it simply would not be worth my time dividing my attention between uni, side jobs and the market. It is worth it to me with altcoins that have more room to grow.

Naturally all of the projects I invested in could fail and might lose my tiny budget and end up wasting my time anyway. But on the other hand I will become more financially literate and might use the acquired knowledge once I start earning more money. The failure state is the same - the reward might be higher.

As I am typing this I can feel the element of gambling in this rationale. There might be a falacy at play as well. But to me it seems like I am risking an ammount of money I am completely willing to part with for a greater reward than if I invested into BTC. But I know I wouldn't be comfortable being all in on altcoins if I had a higher budget.

Do you think it's too late to consider oneself early for the next btc run (assuming it happens) by stocking up now? After all, we're only a bit above the low a few weeks ago and might get closer to it before taking off. And I'd say if people haven't moved out of alts might as well just hold until things change for the better for them.

Good analysis as usual

Always great contents!! Keep up with the good job!

I searched but wasn't able to find the article on contrarian strategies you mentioned. Can I get a link, or at least the title of the paper?

Great video as always. Could you post the link to the part of the video that is around 10:00 mark about Bittrix and USD?

Hey dude.
I'm willing to offer you trading advise for as low as 0.2 bitcoin per day.
I have figured out a system that works 95% of the time.
Basically it goes like this: Every time I buy a coin, it literally goes down the next minute.
Every time I sell bitcoin, the downward trend is stopped and reversed.
Who can offer you this? Crypto bobby? No. Warren Buffet? Nope.
I will send you messages on telegram and you'll be rich!
Let me know, Ill send you my btc address!

Thanks and keep up the good work.
Need to see your last video. What I would like to see more is your evaluation on forks.
The litecoin cash is currently on yobit for 5$ so that was a waste of effort.
Other question: Investors have a huge unregulated playground and make profits upto 10% per day/week. Also the big whales will do everything to protect this from breaking down. 1 guy can basically make the btc price on lets say bittrex go from 9000 to 11000 in 5 minutes with ease. It will trigger 10% rise algorithms and other exchanges will folow.How does that fit in the bubble theory.

Bitcoin remains the king.

I do not hold any bitcoin for a number of reasons.

  1. It's seemingly impossible to ascribe an inherent value to. For instance, people use Steemit thus giving giving the steem token value. I would be a nervous wreck holding bitcoin because there is not a business behind it.
  2. Bitcoin does not have a leader to evangelize like Vitalik. CEO's and top brass matter. Since this is a decentralization movement perhaps this gives bitcoin some allure that it is faceless.
  3. Bitcoin currently uses as much electricity as the country of Ecuador.
  4. Alt coins due to a lower market cap can pump significantly faster.
  5. I own a decent amount of Polymath and it has outperformed bitcoin as a whole in February, so there are some alt coins that have being holding their own quite well recently.
  6. I am patient. I would rather rest comfortably with the alt coins I have even if it means some short term loses against bitcoin.
  7. Bitcoin has a branding issue. Is it for transactions, or is it a store of value? Personally, I think it should strive to be purely a store of value and forget small scale transactions. If a war breaks out, people will want a safe place to park their wealth. Being a new gold has major utility.

love these vids. Dry and to the point. No shilling. Cheers man.