You learn ten-times more about a market when it goes down than when it goes up. And during yesterday's 10 percent bitcoin crash, we learnt something important. We learnt which altcoins stay strong in a crypto selloff.
A very small group of altcoins outperformed bitcoin during yesterday’s selloff: BNB, Chainlink, and Leo. It’s the first sign that some alts are decoupling from bitcoin in a market that is wildly correlated.
3 altcoins stay strong as bitcoin falls
When bitcoin falls, the key thing to watch is where traders look to put their money. So we’re looking for assets that performed strongly relative to bitcoin. Below is a table shared by trader Josh Rager on his Telegram group:
It shows that Binance Coin (BNB) rose 6.95 percent against BTC. Bitfinex’s LEO token rose 8.46 percent while LINK climbed 8 percent.
As Rager expanded on Twitter:
“Altcoins that perform well during turbulent market days, when most other coins are red, are coins that I look at potentially investing.”
Can you hedge risk in your cryptocurrency portfolio?
In a traditional stock portfolio, you hedge your risk by diversifying into different sectors and assets. Tech stocks move differently to oil stocks, for example.
That doesn’t happen in cryptocurrency. The whole market is correlated. Even though ethereum serves a profoundly different purpose to bitcoin, the two coins generally move in the same way.
1/ Portfolio diversification in crypto is a widely misunderstood topic
This isn’t the traditional investment world where you diversify in order to decrease unsystematic risk and improve your portfolio’s sharpe
— Jack Purdy (@jpurd17) July 9, 2019
Diversifying a crypto portfolio doesn’t reduce your risk. You buy altcoins because you like the project. But not because it softens your portfolio downside.
But as BNB, LINK, and LEO have shown, this might be starting to change.
Look for altcoins with real utility
The one thing BNB, LINK, and LEO each have in common is strong utility and application. BNB and LEO are native exchange tokens, which means they’re likely to maintain demand even when traders are selling.
Meanwhile, LINK is breaking out beyond the crypto sphere with key partnerships at Google and Oracle. LINK’s performance is no longer reliant solely on the crypto ecosystem.
As I’ve written before, we won’t see a repeat of the 2016-’17 alt season. Instead, we’ll see a select group of high-quality altcoins rise up exponentially. And we’ll see those promising altcoins decouple from bitcoin.
A more targeted, more diverse, and higher quality alt-season is coming. But there’ll be some big deaths along the way.