Small-cap altcoins pitfalls
We’ve made an observation that may be useful for “HODLers” who own a bag of different cryptocurrencies. It can help to understand which altcoins are more profitable for investing.
Everybody knows that the larger the capitalization of the coin, the less its volatility. Since the beginning of 2018 small-cap assets fell in price more than large-cap coins.
Check it out. We have grouped altcoins by capitalization and compared price changes of the resulting groups.
The first group includes ETH, XRP, LTC and other cryptocurrencies from the TOP 10 (CoinMarketCap, December 31, 2017). Positions 11 to 40 are in the second group. The third group contains remaining cryptocurrencies from the first hundred. Further groups hold the 2nd and the 3rd hundreds.
The top ten altcoins portfolio dipped by 82% from the January maximum, meanwhile, assets from the third hundred fell by 92%. Those $1000 allocated in large-cap cryptocurrencies in January 2018 now cost $180, while the same $1000 in small-cap altcoins cost only $80.
Quite an expected result, but that should be noted.
Many cryptocurrency owners become addicted to small-cap altcoins in order to achieve a rapid growth. After all, if they fall heavily in price when a downtrend, then by logic they grow stronger in an uptrend case.
But it’s not always the case! Here is an example. The most noticeable increase in prices for 2018 occurred in April. Here is a fragment of the same chart from this moment:
The graph shows that large-cap altcoins not only reduce the risks of a fall but as turned out generate more profit than small-cap altcoins during the uptrend.
This can be explained. Considering the amount of new crypto projects appeared over the past two years due to the hype, it is clear that many of them have received an unreasonably high evaluation. Now when market is being gradually cleared and returning to normal, weak projects are under the greatest pressure.
Please note that this situation does not apply to Bitcoin. It is usually less volatile during both a downtrend and an uptrend. So, in April 2018, it grew by only 49%.
The conclusion for “HODLers” — you need to be extremely careful when investing in small-cap altcoins. One should remember that they are much more sensitive to the market manipulations. And if you don’t have a direct contact with the main holders of your chosen asset nor you have an access to additional information, then keeping small-cap altcoins in the hope of x3-x5 growth is not profitable in most cases.
Such portfolios are being gradually complemented by new small-cap assets and the result is getting closer to the charts presented above. A useful rule for “HODLers” is to stick to the top 50, which can be easily achieved with ICU.ME indices for instance. You can buy a set of largest-cap altcoins in a few clicks and preserve your portfolio proportions and actuality thanks to automated rebalancing and regular revisions.
