Altcoins are a dime a dozen in the cryptocurrency market. There exist thousands of different digital assets, all of which promise to offer society with a novel use case that its competitors cannot. It should thus come as no surprise that altcoins are subject to different price trends. Some move directly in sync with Bitcoin; others are subject to dramatic price rallies and horrendous capitulation events due to low levels of liquidity.
Bitcoin Economics, a Twitter account focused on analyzing the nascent cryptocurrency market, recently attempted to analyze top altcoins to determine which ones have the most profit potential and exhibit the most similarities to Bitcoin.
While most of the cryptocurrencies, including Ethereum, Monero, and DASH, analyzed move in correlation with Bitcoin, three coins stood out as trades that could yield the largest profits: Litecoin, XRP, and Stellar Lumens (XLM).
The account argued that the three cryptocurrencies “look like pump and dump coins with long flat periods [of accumulation] and extreme spikes [to the upside]”, implying that there is potential for profit to be had.
For people who missed the train and still want to enter in the final weeks of a bull market, Litecoin, XRP and Stellar are the best choice to make the most gains. But at the start of a bull market, like now, they are a horrible choice. They wear you down with their inactivity.
— BitcoinEcon (@BitcoinEcon) September 29, 2019
This, by no means, implies that the abovementioned altcoins are safe investments. Arguably, the fact that they are susceptible to “pump and dump”-like price action is a sign that they aren’t meant to be long-term, predictable investments for the risk-averse, or even short-term swing trades by experienced crypto investors.
But it’s food for thought nonetheless.
Maybe Stick With Bitcoin, Not Altcoins
While it may make sense to stick with Litecoin, XRP, or Stellar Lumens to generate wealth, one analyst has argued that it makes no sense to invest in altcoins, especially in the context of long-term value investing.
In a recent tweet, Adaptive Capital’s Willy Woo said that altcoins are “highly correlated to Bitcoin“, and thus don’t act as portfolio diversifiers. Instead, cryptocurrencies “only increase portfolio risk”, Woo explained.
…and for the record, alt-coins are highly correlated to BTCUSD. Buying alts in an attempt to diversify only increases portfolio risk. This is why I am not a fan of alt-coin index baskets. https://t.co/y6HNIziZAR
— Willy Woo (@woonomic) September 21, 2019
While he didn’t elaborate on that cryptocurrency investment thesis in the above tweet, he expanded on his thoughts on Bitcoin maximalism in an earlier message.
Woo at the time said that while cynics say Bitcoin is “old tech, too slow, [and legacy],” it is the only cryptocurrency with a solidified Lindy Effect — which is the theory that the longer a technology/asset stays alive, the more survivability it has. Bitcoin, of course, is a first mover in the cryptocurrency space, and clearly has the largest network effects, despite its lack of ICO reserve or venture capital fund.
The investor thus concluded that Bitcoin would be the “only coin” that he would “park funds in if [he] was forced to HODL 10 years without selling”.
Photo by Pepi Stojanovski on Unsplash