Let’s just begin with a recap of the latest news from the world of cryptocurrency:
after Microstrategy, Tesla also put 1.5 billion $ of their reserves into Bitcoin;
Mastercard will offer crypto payment in 2021;
the first Bitcoin ETF was approved in North America;
the City of Miami now allows its employees to be paid in Bitcoin;
Uber may accept cryptocurrencies as payment sooner than later;
BNY Mellow, and Deutsche Bank are planning to support custody and crypto trading services.
It seems that the trend for cryptocurrencies is set. More and more public companies and institutional investors are entering the game, sending the whole crypto market to over 1.5 trillion $.
In this extremely bullish scenario, the experienced ones know where to look to maximize their gains. While on one hand Bitcoin and Ethereum are “safe” bets, and can lead to massive gains in bull cycles; on the other hand, the astounding 100xs happen in the atlcoins (alternative blockchain protocols to Bitcoin), and tokens (digital currencies built on top of platforms like Ethereum) world. For simplicity I will refer to both categories as “altcoins”
There are thousands of different cryptocurrencies, each trying to gain their share in very new markets. It is not an easy concept to grasp, but most of these altcoins have much more utilities than just being money. Many represent projects that are key parts of entire financial ecosystems, each allowing different functionalities.
IF it is true that blockchain protocols can be the very base layer of a new internet, it is also true that there is an immense undiscovered potential in all the services that are, and will be needed on a totally new protocol: insurance; financial services; unique digital assets representing real assets, instantly verifiable; settlement services; interoperability solutions to allow different blockchains to communicate with each other; and the list can go on… there is a world of economic and financial activities that is currently being built.
The altcoins market dynamics
Some altcoins (starting with a capitalization below 10 million $) have the chance to become unicorns (with a market cap over a billion $), leaders of their respective markets.
Finding the good project, with a good feasible idea, and the good people to realize it, is obviously the objective; but these rare gems are not easy to find, especially at early stages when there is still a sea of uncertainties and risks between the idea and its realization.
Crypto bull cycles, based on the short history, last 1-2 years. Within each bull cycle there is a peculiar dynamic: several shorter cycles of weeks/months when the price of altcoins skyrockets, even if compared to the Bitcoin price; these are called “altcoins seasons”.
Usually the price of Bitcoin starts rising first, with Ethereum to follow. Then the market overall takes profit, Bitcoin settles down, and money starts flowing in the altcoin jungle in search of 100x gems. This happens several times in a bull cycle.
During these moments, altcoins offer jaw-dropping performances; and entering the right new project (by buying the project-related altcoin) at the right moment is the ultimate reward in the crypto; and not only. Imagine having invested very early on in Amazon, Facebook, or Twitter... Performances are not calculated in %, but in multipliers.
Easier said than done
With tens of new altcoins coming out every week, keeping track of all of them is almost impossible. Finding the good ones requires a lot of time, since you have to go through good and bad; and the knowledge required to understand many of the value propositions is not for everybody.
As it is true for start-ups in general, most new projects will fail; some will win a place in the market; and only a handful will become unicorns; therefore, the risk of having one’s capital depleted is very high and very real; but it goes accordingly to the parabolic potential returns on the other side.
Once the due diligence is done, you have to get to the right platform to buy the altcoins. Many of the new and small ones (in terms of capitalization) are not available on mainstream centralized exchanges like Coinbase, Kraken, or Binance. In most cases you need to use Metamask, a decentralized wallet that interacts with the Ethereum blockchain; and Uniswap, the biggest decentralized exchanges where new projects list. Using these tools, and understanding their mechanics is all but intuitive; and it represents another barrier.
Final thoughts
It is always a good idea to have your money in crypto during bull cycles, since the whole market grows exponentially; managing to understand the altcoins cycles is the hack that allows to maximize returns.
The most important thing to remember is that every bull cycle ends; and it usually does drastically, when least expected. Currently there is a lot of euphoria in the market. If on one hand it can be justified by the insane returns; on the other it’s a scary sign that this cycle may be approaching its peak; no one knows for sure when, whether it be in 3, 6, or 9 months; but when it does, sadly, a lot of people will lose a lot of money.
Being able to time the market is everyone’s dream and goal; but there so many factors involved that it’s almost impossible to do it perfectly. Broadly speaking, since this industry seems to be here to stay and grow in the long run, finding the right market players is a winning long-term game despite market cycles. Prices will go up and down; and when the market turns bearish they may stay down for a while; but quality will come out at the end. (Bitcoin docet)