jacobcanfield

A Strategy Guide For Trading Altcoins With Bitcoin Dominance

CRYPTOCAP:BTC.D   Market Cap BTC Dominance, % (CALCULATED BY TRADINGVIEW)
One of the most common questions I get when it comes to altcoins is, "should I trade or should i just buy and hold?"

For most people, buying and holding (or hodling) is often times the best answer.

It's less time intensive and you don't have to think about it too much.

The problem (and often asked question) is, "when should I start buying?"

For that, I would highly recommend familiarizing yourself with the dominance charts on Trading View and the cyclical nature of alts vs bitcoin .

To find the Bitcoin dominance chart (which is what we are using right now), just type in BTC .D in your tradingview indicator at the top.

What is Bitcoin dominance?
Bitcoin dominance is the ratio between the market cap of Bitcoin to the rest of the cryptocurrency markets.

A KEY FACT:
Just because Bitcoin dominance goes UP doesn't mean that Bitcoin price is also going up. It means that it's market share is going up relative to the rest of the market.

In 2018, we saw a flight of capital from small cap and mid cap altcoins into Bitcoin where dominance went up, but Bitcoin's price continued to go down and even capitulated towards the $3200 level.

What the dominance actually represents is the relative value of alts VS Bitcoin . (i.e. XXXBTC pairs for altcoins.)

So when dominance is falling, that means that the altcoin pairs (typically majors and mid caps) are gaining value relative to the BTC pair.

Vice versa, when dominance is going up, altcoins (typically majors) are losing value relative to bitcoin value.

This is where it gets tricky trading altcoins or being a hodler in general.

Sometiems, you can gain BTC value but lose USD value if Bitcoin falls faster than your altcoin gains value relative to bitcoin .

If, say you want to go long on XRPBTC (to gain bitcoin ), we can see that we saw a very good opportunity last week when I sent the XRPBTC chart.


Even easier to see on the 4 hour time frame here:


To update:
Okay, so we got our pull back to the 2750 level and took a long on it.
Our current trade is in profit for 24% in Bitcoin value. This means that if we had put 1 BTC into the trade, we would now be at 1.24 BTC in total value for XRP.
Awesome!

Now, let's check out the XRPUSD chart to see how we are doing in USD value.

Because we bought the BTC pair, we bought the XRP pair around $.236
The value is now at $.285 and we are now up 20% in USD value.

If you had put in $10,000, you'd now be up $2,000 for a total of $12,200. - A 20% gain so far.

As you can see, there is over a 4% difference in Bitcoin value and USD value relative to the gains.

This is much more exaggerated during Bitcoin volatility , which means we need to be especially careful buying a bullish altcoin set-up when Bitcoin is at high time frame resistance.

Comparing price and dominance side by side, you can see the point that 'dominance' doesn't equal bullishness even better.



Bitcoin dominance went up over 100% from Jan 1 2018 until Oct 2019.

In the same time span, bitcoin price dropped 80% and also went up 330% from the bottom.

These 3 charts give you a little better perspective on the higher time frames.

On Jan 1, we saw the bottom of altcoin dominance and a confirmed bullish bounce.

Bitcoin went down 80% in USD but rose by 330% off of its bottom while dominance continued to climb.

Ripple (XRP), on the other hand declined by 94% in USD value and 78% in Bitcoin value and is only up 40% in BTC value from the lows and is up this month about 20% from the lows.

The only period of time that was a good time to hold Ripple was actually where went down and was flat in September of 2018 where Ripple went up 160% in USD value.



If you buy an altcoin and the dominance level stays the same, meaning the Bitcoin value relative to the altcoin stays the same, then you will 'maintain' your bitcoin value and lose USD value for the trade.

Some people ONLY care about 'stacking sats' no matter what the price of Bitcoin is at. This is because they believe in the long term viability of Bitcoin and think that the price will appreciate no matter what.

If you want to 'hodl' an altcoin for long term, it is always better to buy or scale into altcoins when dominance is at high levels at key resistances and showing confirmed signs of weakness than it is to buy at the bottom of dominance levels.

This is because you will be subject to massive draw downs in relative bitcoin value, whereas your USD value may hold well.

A real life example using XRP
You take $32,000 in cash and buy Bitcoin on Dec. 10th, 2018 when Bitcoin was at $3,200.

You now have 10 Bitcoin .

You then take the Bitcoin and buy XRP.

XRP USD value iwas at $.29.
XRPBTC value was at 0.00008700

You now have 114,000 XRP.

To date, your total bitcoin value would be at 4 Bitcoin worth of XRP.

Your total USD value would be roughtly $31,500.

This is the true cyclical nature of the cryptocurrency markets.

If you are looking for exposure to a specific 'class' of altcoins, you can also trade indexes.

On some exchanges, they have mid cap and small cap altcoin indexes that you can get exposure to without having to buy individual altcoins themselves.

You can also use a 'futures' contract to 'hedge' a portfolio of altcoins if you are a hodler.

There are lot of nuances and strategies that you can use when it comes to trading cryptocurrencies, but hopefully this guide gave you a good idea of when to long altcoins and when to short altcoins based on the dominance of Bitcoin in the market.

Hopefully this helped you get a better idea of when to short and long altcoins.

If you enjoyed the read, please consider giving a +1 to the chart and sharing it with your friends.

Thanks for reading!
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Excellent read!
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Good strategy!
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Amazing stuff #jacobcanfield! I'm holding LTC, XRP, ETH, and TRX for alt season BTC gains!
+1 Reply
Thank you, great post !
+1 Reply
Wow great learnt alot
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Thanks for this, I actually just posed this question myself - does it make sense to apply traditional TA to a dominance chart?
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This is exactly why I only ever trade USDT. Trading BTC, ETH or BNB paired with altcoins means double the task of watching two coins at the same time.

If you're like me and have diversified into a few coins at once, you can imagine what a headache this could become.

I don't think many fully understand that just because a BTC/Altcoin pair goes up in value, it doesn't mean that they are gaining equally as much profit overall.
+2 Reply
CryptoTraderXL PurpleCrypto
@PurpleCrypto, Same for me. I don't like the BTC exposure. From a risk management perspective it is safer to trade alts in USD(T) pair.
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Excellent write-up. Thank you Jacob.
+1 Reply
a major alt season means it would be the best time to get alts?
+1 Reply
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