When Bitcoin hits a record high or climbs to high levels such as we see today, ($60,932 at the time of writing,) we notice media outlets hyping up alt coins such as ADA, XRP, DOGE, and others.
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However, this is a simple trick coming from the desperation of alt coin projects, to get their voices heard and their projects considered by people. It is important to note that although there are great cases of businesses involved in some truly revolutionary projects like Cordano, IOTA, and others, to this day they all still capitalize on the glory and fame of Bitcoin, kind of like when Eminem used to go to the Grammys and almost every other upcoming artist would capitalize on his presence for exposure.
You need to understand something known as “correlations” to get where I’m going with this. According to Investopedia, a pretty good place to refresh your market lingo, a “correlation,” in the finance and investment industry is a statistic that measures the degree to which two securities move in relation to one another.
Correlations are used in advanced portfolio management, computed as the correlation coefficient, which has a value that must fall between -1.0 and +1.0. A perfect positive correlation means that the correlation coefficient is exactly 1. This implies that as one security moves — either up or down — the other security moves in lockstep, in the same direction. A perfect negative correlation means that two assets move in opposite directions, while a zero correlation implies no linear relationship at all.
To this day, the correlation between all cryptocurrencies and Bitcoin is close to +1.0, which is a rather high positive correlation. It is worth noting that Bitcoin has a colossal market size in comparison with smaller cryptocurrencies such as IOTA or Cordano, requiring much larger volumes to move its price.
Furthermore, Bitcoin is still the base currency for the crypto world and the dominant cryptocurrency. All cryptocurrencies hover in the realm of Bitcoin, but what I’d like to discuss is the price action and behavior of alt coins in comparison to that of Bitcoin.
Given the size and importance of Bitcoin in the crypto market, I believe that its movement is becoming slow, heavy, and impactful during times like these, which are considered to be price stabilization zones (areas a price moves in for an extended period of time after a quick price increase or drop).
Having rallied substantially in the past 2 years and corrected multiple times, the price is now creating a channel between $40,000 and $60,000, with both figures being short-term upper and lower price levels, we expect the price to move for a few more weeks between those levels before it breaks above or below one of them and takes a new direction. Now, in times like these where Bitcoin is going sideways, many altcoins may attempt to break out and in some cases might; however, in a non-sustained manner — this is known as a false or fake breakout.
Many might mistake a false breakout as a real one and attempt to follow the breakout’s direction. However, given the insanely high positive correlation between Bitcoin and all other cryptocurrencies, I believe it will be impossible for any cryptocurrency to breakout before Bitcoin does, so maybe hold onto your horses and don’t jump into buying ADA, XRP, IOTA ,or any other alt coin before Bitcoin breaks out as its almost guaranteed to give you short term profit before eating it all back.
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