Bitcoin pumps, what about your Alts?
Do you see your Alts drop while BTC pumps? Don’t worry: it’s perfectly normal and we can explain why.
The BTC pumps at once, your heart is racing. You think that the whole market goes up — because you know that the Alts are very correlated in recent months.
You take out your smartphone, check the courses and Alts (/BTC), and there, surprise. Everything goes down … or almost.
Moment of worry.
Your stop loss? Some have even been activated…
You then look at your wallet in $ and there, by cons, you see that you still made a nice profit.
You ask yourself, how is this possible? A bug? A position that worked very well? Damn, you can not find it. What happened?
Winner or loser?
In fact, this kind of situation is quite common when BTC suddenly increases so much and the Alts do not have time to follow.
In practice, you will be both a winner and a loser. Yes it is possible.
Winner in USD, loser in BTC.
Absolute and relative value
If BTC increases more than the Alts (and therefore you see the Alts/BTC in the red) you will be in deficit “in BTC”. By cons, you could very well see a (very) big increase in your USD value.
This comes from the difference between relative value and absolute value. Each currency (crypto) can be calculated on two different pairs: Alt / BTC and Alt / USD.
Alt/BTC: relative value. In practice, Alts are often bought in BTC and Bitcoin has become a kind of standard value for cryptos, being the biggest and also the most “stable”. Thus, we analyze the price of an Alt on the basis of Bitcoin, since it is the only way to buy it.
Alt/USD: absolute value. The FIAT currencies (traditional currencies: $, €, etc.) are still the best way to know the real value of a thing, since most consumer goods are still bought, for the moment, in FIAT. Thus, with the Alt/USD pair, you can know the absolute value of your portfolio in USD.
In practice, what is the impact of this?
- Let’s imagine you have 1 ADA
- BTC/USD pumps suddenly +5%
- ADA/USD is +1%
- What will ADA/BTC show? Approximately -4%.
Indeed, ADA / BTC is calculated according to the evolution of Bitcoin. Thus, if it remains stable but the Bitcoin increases, the divider of the pair ADA / BTC will decrease the price of x%. In other words :
% (ADA / USD) -% (BTC / USD) =% (ADA / BTC)
You will see your total BTC portfolio decrease, but your position in $ will increase.
What to do then, when it goes up like this?
To tell the truth, this will depend on the case by case.
Indeed, depending on your strategy (short, medium or long term), your stop loss, traded volumes, … It might be good to get out of position and take profits, just as it might be good to stay or position yourself on Bitcoin.
From a historical perspective, ALTs have often followed up after BTC has increased. To move position too quickly would be a bad thing.
For your stop loss, if they were activated, it is probably that the position was following the evolution of the BTC way too far. The stop loss will then allow you to leave the position and follow the evolution in BTC. Be careful of the pull-back though!
Summary
During a BTC pump, if the BTC/USD growth is greater than ALTs/USD growth, you will artificially see ALTs/BTCs values in decline. But if you are losing out on the BTC sum, you could very well be winning in dollars.
Who said that cryptos and relativity could not mix?
Benjamin for Crypto-Addicts
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