Bitcoin and How the Crypto Money Flows

Hello Traders,

Today I wanted to discuss something that will help you in your crypto trading journey. Today I wanted to give you an idea of how the money flows in and out of crypto. I am sure from time to time you have wondered why some coins moved the same as bitcoin and others moved when Bitcoin was going down. Well today you will understand that a little bit better.

How Does Money Flow In Crypto?
Fiat
The Crypto Money Flow Cycle begins with Fiat. Whether that’s the US Dollar , the British Pound, or the Euro - cash is needed in order to make a cryptocurrency investment.

Bitcoin
The typical cryptocurrency investment will start with Bitcoin as it is the world’s most notable cryptocurrency. And as more investors dedicate a portion of their income/savings into Bitcoin , the price of the asset will rise.

When Bitcoin’s price rises, it is at this point in time where investors are enjoying enough returns to start thinking about how they can build their wealth even more. Inevitably, they stand before the decision of whether to simply buy more Bitcoin…

Or to allocate some of their funds and build exposure in other cryptocurrencies. These coins that are Alternative to Bitcoin (i.e. “Altcoins) are likely offered on the very same exchange where the investor bought their Bitcoin .

Large Caps (i.e. predominantly Ethereum )
During Bitcoin uptrends, investors develop a growing need for a higher return on their cryptocurrency investment. Which is why they seek to diversify their funds into Altcoins like Ethereum .

Ethereum is arguably the most well-known cryptocurrency as an alternative to Bitcoin and is often the next logical choice to building a diversified portfolio. And though a well-established platform by now, Ethereum is still a smaller cryptocurrency by Market Capitalization compared to Bitcoin .

So theoretically, an investment in Ethereum carries more risk than an investment in Bitcoin would. On the flip side however, an investment in Ethereum would yield higher returns compared to a Bitcoin investment.

This change in risk is important in the context of the Money Flow Cycle as it highlights not only how investors tend to lust for higher returns on their cryptocurrency portfolio but also how the risk appetite of these investors grows as the Bitcoin uptrend rises.

Mid-Cap Altcoins
That being said, many smaller Altcoin projects are built on Ethereum , which is why Ethereum is often heralded as the leading indicator for increases in the valuations of smaller Altcoins.

When Ethereum appreciates in price, the prices of smaller Altcoins rally shortly thereafter.

However, these Altcoins are less known by the general public and therefore attract less investor interest. For that reason, these Altcoins have a smaller Market Capitalisation compared to Ethereum , let alone Bitcoin itself.

Compared to Large Cap Altcoins like Ethereum , Mid-Cap Altcoins have the potential to rally even higher when they generate interest from the cryptospace, generating a far higher Return On Investment while simultaneously carrying much higher risk than Large Cap Altcoins.

Small Cap Altcoins
Small Cap Altcoins are high-risk, high-reward investments and tend to rally exponentially at the very end of the Crypto Money Flow Cycle.

As investors get in the habit of adopting more of a risk-seeking approach and circulating their profits into smaller and smaller Market Capped cryptocurrencies, inevitably they set their sights on higher-risk, higher-reward investments.

Which is why these types of Altcoins tend to rally multiple the gains that Bitcoin or Ethereum offers such as 2x, 4x, 10x or even more.

And as the prospect of reward in a seemingly never-ending uptrend appears evermore attractive, the risk appetite of investors imperceptibly grows alongside it.

Low Caps are the last Altcoins to rally in a Crypto Money Flow Cycle as investors have no other coins to circulate profits to. In fact, many investors decide to book their profits at this time, securing their profits either in Bitcoin (if they’re trading Altcoin/ BTC pairs) or in Fiat (if they’re trading Altcoin/USD pairs).

Back to Bitcoin or Selling into Fiat
When Small Cap Altcoins rally exponentially (yielding investors a multiples-worth of a return on their initial investment in the process), this sort of euphoria-fueled buy-side pressure precedes one of two things:

Money Flow back into Bitcoin or Money Flow back into Fiat.

Should investor capital flow into Fiat, it is likely that a corrective period for cryptocurrencies will lie ahead as this is a moment in the cycle where investors secure their profits and de-risk completely from their cryptocurrency investments, causing asset prices to crash.

However, sometimes this money flows back into Bitcoin , further fueling the uptrend and preceded further Money Flow back into Large Caps, Mid-Caps, and Small-Caps once again.

Especially during bull markets, cryptocurrencies experience a handful of micro-Money Flow cycles within a larger, macro Money Flow cycle before enduring a market-wide corrective period where Money Flows out from the market and finally into Fiat.

Now that you have a better understanding of how the money flows in and out of crypto you may have a better understanding of why different coins move at different times.

As always, have a green week!

Savvy