Crypto Investing Guide – Fundamentals That Help

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Disclaimer: Crypto is a fast-paced economy and things change quickly. Information on this post might be outdated even if written today. Do your own due diligence and stay safe. I might get affiliate commissions for purchases made through links in this post. Read the disclosure.

Alpha Gained:

USD And USDT

The decline of the purchasing power of the U.S. dollar by Visual Capitalist

USD’s value has been declining since 1913. Previously you were able to buy 20 bottles of coca-cola for $1. Today $1 gives you one coffee from McDonald’s.

When you jump to crypto you will be trading pairs usually matched with USDT. USDT is the “USD” of the real world. USDT or Tether is a “stablecoin” that follows the USD as closely as possible.

You might have also seen USDC and UST, and they all aim to do the same thing, follow USD as closely as possible, presenting a concept called stablecoin. USDT is in a special place as most of the tradings pairs are formed against USDT, but the big question is should you care about USDT and why is it that you might not get as much profit as you might expect from your trades and investments.

If you live in the US and have USD as your main currency, following USD values might be somewhat of a “good idea”, but when USD is not your main currency, then you are better off following USD.

However, what you might want to keep in mind (even if living in the states) is that USD is losing value, not gaining value. It’s not helping that the US is printing USD more and more as that will only decrease the USD’s value even more. So owning USD (or USDT in crypto) might not be wise when thinking long-term investing.

There’s a reason why institutions are interested in crypto and that is because of the gains possible to make in crypto. The stock market, bonds, and other investment vehicles are not giving institutions the gains they are looking and USD losing value only makes the situation even worse.

Bitcoin (BTC) Value Vs. The USD Value

crypto_bitcoin_usd_value_trading

Even though your favorite altcoin might go up one day by 20% and your favorite influencer says you are making a bank, the reality might be very different. The reality could very well be that you are losing money on a steady basis when looking against BTC. 

The reason why you should always compare the token’s value against BTC is that Bitcoin is a strong crypto coin and usually makes a pretty steady climb upwards. So even though your altcoin might make a few 20% runs, they also make steady 20% drops, whereas Bitcoin is more stable and predictable.

So your altcoin may make you feel like you are making USD profit, but in reality, your investment is lagging behind Bitcoin. Bitcoins value is growing and going up and altcoins value is going up in USD, however, when compared against each other, Bitcoin might be winning the race, and thus you are left with USD, which is decreasing in value but also decreasing in value against Bitcoin.

chainlink_vs_bitcoin_price_action_trading
8H Chart. Jan 23rd – Feb23rd, 2021. Owning Chainlink (LINK) wouldn’t have been a better investment than owning Bitcoin. Bitcoin outperformed LINK, even though LINKUSDT shows a roughly 45% increase in value

Altcoin Vs. The Value Of The Bitcoin – (ALTcoin vs. BTC)

LUNABTC trading pair. Showing how owning LUNA is a better decision than owning Bitcoin. Situations change in time.

If you do not have USD as your base currency and even if you would have it’s crucial that you understand charts and coin prices when compared against BTC. You see, even if your favorite altcoin is making a jump, it does not mean that you are that much more profitable.

Bitcoin might be doing leaps and bounds at the same time, leaving your altcoin behind, and for that very reason, you need to check what is that token’s price against BTC. Only by comparing BTC against your favorite altcoin will you see if your coin is actually performing or dragging behind Bitcoin.

Bitcoin is still the one coin that controls the whole crypto market, what Bitcoin does, the other coins will follow. So when investing in crypto you should keep in mind what coins are actually performing better than Bitcoin (and no, there are not that many when looking at long-term holdings and gems).

So if you are losing money on the crypto market, even though you see that your altcoins are making gains, it’s because USD is losing value and you would be better off just owning BTC. BTC in many cases (in almost every case) is a stronger bet than any altcoin. Polkadot, Luna, Ethereum are some of those rare gems that have fared well against Bitcoin. Other altcoins have more or less a downward trend or a magical unicorn ride behind them that won’t last the next bear market.

Bitcoin Dominance Strategy

Bitcoin dominance shows if the money is flowing into Bitcoin or to the altcoins. Bitcoin dominance is a metric that shows how much Bitcoin dominates the total crypto markets. If the dominance is going down, it means that more money is flowing to the altcoins, rather than to Bitcoin. At this point, it’s more preferable to own altcoins than Bitcoin.

If Bitcoin dominance is going up, it means that the altcoins are not growing as much as Bitcoin, and so money flows into Bitcoin. Bitcoin dominance does not mean that if Bitcoin’s price goes up, the dominance goes up or that if Bitcoins price drops, that dominance goes down. 

Bitcoin dominance is useful when you want to see whether the trend is favorable for Bitcoin or for the altcoins. If the trend shows that Bitcoin is going up, then it also means that the money flows into Bitcoin and thus the Bitcoins price is more or less going up relative to altcoins.

If the trend shows that Bitcoins dominance is dropping continuously, it means that altcoins get more money than Bitcoin and while this happens, it can very well be that both assets (Bitcoin and altcoins) see an increase in price, but the majority of money is going to altcoins.

Bitcoin Dominance (BTC.D) vs. Total Market Cap (TOTAL) ~Jan 2019 – November 2021 (Weekly View On TradingView)

Crypto Seasons

Crypto seasons mean the money flow inside crypto. From Bitcoin to Ethereum to smaller cap altcoins. What should be noted about the crypto seasons is that Bitcoin is currently the one that starts the season and somewhat also ends the season. 

When Bitcoin dominance is going up and the total crypto market cap is also going up, it means we are at the beginning of a season. When Bitcoin dominance is going down, but the total crypto market cap is going up, it’s time for the altseason but it also signals that the market is going to have a peak soon. 

If both (TOTAL and BTC.D) are going down, then there will be a dip. 

Weekly View, 2017-2021. Total Crypto Market Cap (TOTAL) vs. Total Crypto Market Cap (excluding Bitcoin) (TOTAL2)

Moving Averages In Crypto

  • MA 200
  • MA 128
  • MA 50

Moving averages are what the name says, moving average of the price in the length of time given. MA 200 means that the line represents the average price (in the selected time interval) from the past 200 (time interval for e.g. 8 hours, D, W, M – usually measured in DAYS).

Moving Average (MA50), MA128 and MA200

Death cross

Death cross happens when the MA 50 goes below MA 200, signaling a bearish view of the market. Usually viewed in the daily time interval (on TradingView for e.g.).

Golden cross

Golden cross on the other hand happens when the MA 50 goes above MA 200, signaling a bullish view on the market. 

MA 200 is seen as a very strong support line in crypto trading, whereas MA 50 is seen as a relatively good support line, but something that can be broken but must be achieved again quickly or there will be a further dip. MA 200 and MA 50 together tend to show whether we are in a bear market or in a bull market.

MA 128 is also seen as a solid support line and it’s not a bad idea to take some profits before the prices go below MA 128 as historically it’s been the support line that is good to keep.

Crypto Market Cheat Sheet

crypto_market_cheat_sheet_juha_ekman
Crypto market cheat sheet (inspired by the wall street cheat sheet) – “open in a new window for a bigger image”

When looking at the charts and making technical analyses, it’s good to keep in mind the famous Wallstreet cheat sheet (now titled crypto market cheat sheet) that somewhat represents the emotions the market is having. The Crypto market is full of emotions and price action is only a sign of what humans feel the price should be. When things go up, people tend to buy as they feel like it will go even more. When the price falls, people buy because they feel like it’s a good price for the asset.

The trading and the crypto market works in two different metrics, fear and greed. As Warren Buffet famously has said: “Be fearful when others are greedy, be greedy when others are fearful”. When the market is trading at extreme fear, it’s more than likely the very best place to buy and when the market is trading at extreme greed, it’s the best place to sell.

The Different Phases Of The Crypto Market Cheat Sheet

Disbelief

This phase is present when people feel like there’s no end in sight and all faith is lost. The market seems to be only red and miserable. No gains are to be made in the market. The market can’t give what you want.

Hope

This phase starts when there’s a small glimmer of hope. The market shows first signs of strength and green candles are slowly being printed to the charts.

Optimism

The good days seem to be more frequent and people are starting to put some faith into the market again. It feels like the market is starting to go in the right direction again.

Belief

The market shows great strength and the trend line is showing a clear upside. People are waking up more and more and want to get invested in the market. Things are looking green and good again. The market shows great strength and it feels like you can’t lose money. So you go and invest a nice sum of money into the market.

Thrill

The market is “mooning”. There’s money to be made and the calls that you made in the hope and belief phase show you nice profit already. It feels like nothing can’t go wrong the excitement is in the air. You feel like you can take over the world and the money just keeps on coming to your doorsteps.

Euphoria

The phase where nothing can go wrong anymore. The token and the coin you bought are making you rich and the euphoria kicks in. You are sky-high, planning your next vacation, wait a second why not just quit your job and never work again. The news is pumping bullish news after bullish news. Everything is high and people make a lot of money. Until they are not. In the euphoria phase, people actually lose the most money. This is the phase where money blinds reasoning and makes people lose the most money as they think, everything will keep going up.

Complacency

A lot has happened before this phase. There was disbelief, hope, optimism, belief, thrill, and euphoria. So the next step is to feel that we need to cool off. The market is overheated, it can’t just go up all the time, it needs to come down at some point. This is what the market feels like and wants to think about.

Anxiety

In this phase, the people start to question what is happening. The money they made is slowly withering down. For some reason, the overheated market isn’t pumping anymore. The profits are slowly going away and the anxiety starts to build up. Things are not feeling too good anymore.

Denial

When anxiety hits people, they like to deny the feeling of losing. They did “win” big after all, during the bull run to the upside. With this feeling of achievement and winning, surely people can’t lose as they already had it all together.

Panic

After the denial phase, the panic starts to creep in. Denial didn’t work, anxiety isn’t going away. It’s time to panic and sell some of the tokens and coins as you are already at a huge loss, so to prevent losing them all, people sell part of their portfolio. Leaving some, just to be in the market.

Capitulation

Things are not turning great anymore and people feel like they need to get off the market immediately. They sell all their coins and tokens and take a massive loss. This kind of capitulation has been witnessed too many times and it always happens after a massive run to the upside.

Anger

When people lose their money, the only logical feeling is anger. Anger towards the market, anger towards the decisions one made. Anger against external factors, when in fact, it was people’s choice to be in the market in the first place. Crypto is a wild investing market and things take a sharp turn at any given moment.

Depression

After anger comes depression. Depressed by the fact that you lost money. Depressed by the fact that the gains and “hard” work you did during a massive bull run is all lost and there’s no hope in sight. Disbelief starts to take over your mind, while you look at the market and how it deceived you. And this is the moment the cycle begins again.

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Written By Juha Ekman

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