Bitcoin used to be the sandbox of the uber-nerd. Even today, old school market sophisticates whose job it should be to know all about crypto are still shuffling around in the foothill of understanding or worse totally clueless about what this new asset is. This is not surprising because crypto really is the deepest rabbit hole most of us will have to spelunk. This complexity is one of blockchain’s core weaknesses, but the same can be said for the early internet and the emerging personal computing scene.
Unsurprisingly, it’s the kids that have wriggled the deepest into the warren of blockchain knowledge, another field mark that this is the next big thing.
[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
When bitcoin and cryptocurrency crossed over from the underworld subculture it was developing in at the end of 2016 and start of 2017, the price took off.
Let’s call this moment Jan. 1, 2017. The denizens of crypto might disagree but without doubt 2017 was the year of bitcoin, so we can start there.
Let’s look at how prices developed.
From this perspective, altcoins are the big story. While bitcoin was the giant brand, the runners-up in brand awareness, ethereum and litecoin, rose further for their Hodlers. The scale of the chart is normalised to BTC to USD:
If you had the good fortune to buy on the first of January and the insanity foresight to hold, then even today after a crash, the returns remain practically psychedelically vast.
It is interesting to note that bitcoin peaked first, litecoin next and finally ethereum, with huge jumps for these coins after bitcoin peaks.
This explosive viral growth mechanism for crypto value is driven by the asset’s passage from obscurity into the mainstream. When the next wave hits and the top tiers of ‘normal people’ suddenly ‘get it’ the cycle will repeat and repeat again and again as broader audiences experience cryptocurrency. That’s the belief.
So where are we in the cycle?
Most of the way to the bottom of the crash at least in percentage terms from the top.
So let’s look at what happened to BTC, ETH and LTC since bitcoin hit its peak. The scale as above is in BTC to USD:
We can see litecoin underperforming bitcoin and over the period because of the late rally for ethereum after bitcoin’s peak, ethereum outperforms bitcoin. However, this outperformance would require a perverse and fortunate market timing for the buyer.
Let’s look at the recent history since ethereum’s peak:
Stating the obvious, all these coins are clearly correlated. ETH and LTC have the alpha on bitcoin. As such, it would make sense to watch them as a way to catch the bottom with some extra pop.
So let’s go back to the beginning. We want a signal that shows us when to reenter. Ethereum and litecoin lagged the end of the bubble, signaled by bitcoin. What signaled the beginning?
What am I doing? As a believer that however much you polish your crystal balls you can never see the future clearly, I’m gently buying dribs and drabs of bitcoin, ethereum and litecoin, all of which I hold and many other coins beside. I am, however, waiting to buy material amounts, because the trend is down and the trend is not our friend until the bend in the end.
I’ll spend at the bend in the end.
That is pretty clear.
The altcoins have the alpha and ethereum leads the charge last time.
The past doesn’t predict the future blah blah blah…. But you would be a fool not to watch for ethereum and litecoin to start rallying as a potential signal for the crypto market bottom we are all waiting for and last year it gave plenty of advanced warning, so will likely do so again after the “Bitcoin is Dead” headlines hit the mainstream press.
Disclosure: I own bitcoin, litecoin and ethereum.