Every once in a while, I like to take a stroll through past articles and see what questions and comments people have had.
Often, there are important topics to revisit, and as with most things crypto, there's always much more to be said than what even an over-writer like myself takes the time for. So, today I'm going to talk a little bit more about how the underlying economics of the greater market are impacted by Bitcoin's dominance, and what people should expect.
One thing is always connected to another
With my varied topics and also the economy of markets, everything has a loose connection if not a tight one.
One point being, that when people embrace their favorite pet projects, they often increase in loyalty the worse things look. This is great if they've backed the right horse; not so great if denial's just a ribbuh en eeegip.
I've been there... pretty sure we've all been there. "X" coin is going to be the next big thing, because it does "y" and it already has a contract worth $1M with "z".
It's so exciting... it's finally gonna happen!
Next month, "x" coin is down 50%, but it picked up 3 new contracts and pumped 2-3% with each exciting announcement. Why did it drop to 100th top coin, then? Down another 30%- ouch!
You know the drill, because if you've done crypto for more than a week it's happened to you.
Also deeply connected is how each coin's overall value will, without question, be impacted directly at market by the current status of Bitcoin. In fact, both of these things work hand in hand. Your loyalty, your token's performance at market, where people invest, and why Bitcoin's dominance places pressure on all of it no matter what.
The almighty (pegged to the) dollar
I think the number is still roughly the same; people trading directly with their fiat vs. trading fiat via stablecoins like Tether. Even though I no longer trade Binance and certainly not Binance.US (until they discover the fees must be justified by the volume), I like to use the software client from regular vanilla Binance for BTC/USDT pairing as my litmus for the market.
Today in 2022, it is just as accurate a barometer for economic pressure as the rest. By watching just this one metric, I understand what is happening with any other projects I watch. If you're trying to get in at a good price on your favorite Alt, consider getting two monitors or opening two browser windows and watch BTC/USDT as well.
There are 4 major moves, with 16 micro-moves that are significant to all other coins/tokens.
1: Bitcoin goes up steadily with low volume
2: Bitcoin goes down steadily with low volume
3: Bitcoin goes up quickly with high volume
4: Bitcoin goes down quickly with high volume
What constitutes fast and slow, high and low volume is subjective to the market, but these are significant in 300 different ways because they tell a monetary story. The more you learn about it, the more fascinating it becomes. The cliff notes to Bitcoin's Market Moby Dick is this: the more expensive something is, and the more $ people have spread across high limit orders, and the more OTC trading that occurs without our seeing it, and the higher volume and value people wish to invest, the harder an asset is to move.
Imagine the price of an asset being like the waves of an ocean, and the economics are the under-current. Water is heavy. It takes a great amount of force to move it. Choppy waves mean one kind of weather, while huge long swells mean something of significance has the force to shove huge tons of water. The latter takes a lot more force and power. That's what we're talking about with the cost of money.
You may be an "x" coin fanatic. It may have done a 100X in its first 3 minutes, but I also like to use gravity as an analogy. The market operates according to an unseen natural law; gravity is the natural state, and it takes an uncommon force to make something rise against it.
So, let's just say Bitcoin is worth $10,000. I love this value because I've seen it for so long well-below this level, knowing it would far exceed it later. And now, many are complaining that it's only 4X that amount. But, for the sake of the argument, if Bitcoin is worth around $10K, that means we're seeing something like a $600 Ether or so, possibly. Litecoin might be around $45 again. Fill in the blanks for XRP and Doge at will. Most of us, at instinct, will react to Bitcoin's price in two ways; we either see the entire unit and say "wow, it costs $10K for 1 Bitcoin- that's a lot" or "you can own any fraction of a Bitcoin that you would like". The latter is the economic truth, but the price IS involved in how hard it is to move that wave.
The market moves in percentages
Even though the current market value is part of the equation, it has more to do with impression and persuasion than the actual cost of moving things around. How much money sits on the order books to sell, how much interest there is to buy, and how much this value finds a price match will determine the volume; think the pressure to move a wave.
The actual movement is, in reality, measured in percentages and not just the at-market price. This is the most important thing to understand, because when putting it all together, a bigger picture begins to surface. If Bitcoin were worth $1000, then a given day that Bitcoin was to rise by $1000 would be a huge deal: 100% in one day? WOW!
Over 3 days in March, 2020 if memory serves somewhere around the 12th, we saw Bitcoin drop with the rest of the market as we all thought we were going to live through the movie "I Am Legend" for real, yo.
Bitcoin dropped from around $8300 to $3800. The buy-in energy was tremendous. Will it go to zero? The economic physics would say it is nearly impossible at this point. Anything's possible, but... I believe we have seen a good litmus test.
The point being, that $1000 sounds huge, but it is relative. We had a time where markets freaked out and Bitcoin dropped 50%. In the months to follow, Bitcoin climbed to $13,000. In coming months afterwards, we had our first new all time high around $28K. At Bitcoin's current price of $43,800, a $1000 move has already happened twice today. 5 years ago, it would have been the biggest news in crypto. Today, it's less than a 3% change.
The thing to notice is that numbers are relative to value, and therefore the percentage is the thing to pay attention to. It is harder for Bitcoin to move 1% than, for example MATIC. Unless there is a temporary fanatical pump taking place, round the clock Bitcoin has a generally high volume. Even when the entire market is weak, things will tend to spread towards the top.
Right now, the same whale could move MATIC 10% reasonably easily, and massively compared to Bitcoin. The same money would likely move Bitcoin around 0.25%.
This is not a knock at MATIC at all. But, it's 24 hour volume is roughly 1/20th of Bitcoin's right now. This means that the same amount of money is likely to move MATIC with much less economic pressure. One still has to account for the actual prices people are willing to buy and how thick that order book is, but volume is telling of how much has been able to crawl through MATIC's liquidity.
The higher the market price perception, the larger the amounts of money sitting in sell orders, the more people interested in an asset, the faster it resolves a sale immediately, so this is all reflected in the volume. Richard Heart says a lot of interesting, smart things, and though he's wrong on many of the finer points, he says them for impact and as part of his argument towards a lot of anti-trading contrarion though, which I'm cool with. One of these things, is that volume is bad, and the best price pump happens when volume is at its lowest. This is true, but it also is a reflection that something is dying at market. When no one is interested in an asset, there are barely any orders set to sell, and many of them were so burned on a pump from months prior, the only price someone will sell is way higher than what its worth.
The tide has gone out and the price is laying on the sand dying for water. The price of 'ded' coin may be at $0.10 and the next person willing to sell is on the order books at $3. Well, if someone made a market buy, it would leap right up to $3, unless that wasn't enough to fill the order, in which case it would keep rising to the next guy's order at $4 and so on, until the whole thing is filled. Some people will interpret this as the greatest price movement for the day, when all it means is someone wanted a dead coin for some strange reason.
So, tying this in to what makes the alts move, and why Bitcoin is a large part of the answer.
Use your own nature symbolism to make it stick. Bitcoin only trades against the dollar and stables. Everything else trades against Bitcoin. A 1% move in Bitcoin represents billions and billions of dollars passing through its price in a given day. That is money that is not traveling through the alts. There are cycles where the alts pump when Bitcoin's volume tends to be lower, but this eventually cycles back into stables and fiat, and Bitcoin.
There are ETH, LTC and every so often one finds XRP trading pairs for other alts, but for the most part its fiat/stables and Bitcoin. There's always liquidity there.
When Bitcoin has a quick surge, it means massive volume. If your coin is already healthy in the order books, perception can mean that people will see a dip caused by a massive Bitcoin wave as a huge buying opportunity (although most won't realize the dip was caused by Bitcoin), and a lot of bots are programmed to auto-buy when 'x' % drops in certain coins. If Bitcoin is making a slow, steady climb and volume is low across the whole market, it is possible your coin locks in sync with Bitcoin and goes up. It is likely to follow all downward movement no matter what. This is the drawback risk to all alts, even ETH.
The larger the coin, the more it hovers
Big coins like ETH, next in line to Bitcoin's price and volume (both things matter), will tend to satellite around Bitcoin's value over time. They will hover around +/- 3% of what Bitcoin did because they have their own interest and high volume, sometimes 'flippening' Bitcoin's daily volume, but everything else still trades more against Bitcoin than Ether, as an example.
Most likely, what you will see under the 4 main conditions I've mentioned, is this:
1: Bitcoin goes up steadily with low volume - most tokens stagger sideways or slightly down unless they pump or scare dump.
2: Bitcoin goes down steadily with low volume - most tokens are pushed slightly downwards to a degree, unless good news or again, a pump or dump.
3: Bitcoin goes up quickly with high volume - most tokens are pushed down heavily, with exaggerated pumps at the lowest dips.
4: Bitcoin goes down quickly with high volume - most tokens are pushed down heavily, sometimes with a substantial pump at the end of the dip.
This will make incredibly good sense to you if we simplified the market as an illustration (well, with words not pictures lol).
Imagine that the entire market was BTC/USDT, YourCoin/BTC and YourCoin/USDT. There's a chance that if a huge billion dollar pump pushed against Bitcoin, it's price would go up, economic pressure would push it's value high with a ton of money on the order books. If Bitcoin is worth more than your current price in your coin, Bitcoin going up will automatically send the value of your coin down. The only question is how many people and bots were looking to buy it lower already? The better the interest in your coin, this drop in value will slow by the number of orders buying against the downward pressure. Not only is the price pushing hard on Bitcoin, but your coin has a lot fewer trades with a lot lower value on the buy orders, so it takes very little to eat through those buys. It is very unlikely that a low volume coin, great as the project may be, can prevent a pretty deep drop without some huge new funds coming in. Whales may be watching for exactly this, which is why some alts pump after Bitcoin. Also consider, that Bitcoin only needed to pump against fiat, Your coin got hit by Bitcoin's value, but it also went down similarly against fiat, because while Bitcoin's price moves, fiat stays pegged to the same thing, so you will move downward relative to a"1:1".
If you understand this, then you will understand the rest.
Now, add 3300 other coins much like yours, all trading against BTC and USDT. They will all get hit relative to their order books and overall amount of money people are willing to buy in with. But, when that crest happens and it is possible for all other coins to start buying back upwards, the upward percentage is going to be less than if the only other coin at market was yours. The money spread across the entire crypto market is divided by all of those coin markets... and Bitcoin. So, if it were just your coin, every time it can pump, it would do so at a higher percent than what we see in reality, because all of that money is spread across all other coins at the same time.
These are general truths based on the economic physics of the market conditions. This is what played out daily and months in 2018, again in 2019, and again in 2020. There is a very good chance that if Bitcoin is doing up/down 10% over a week, up/down 20% or even 30% in a given month, your coin, fantastic as it is, dropped 10-50% while 'great things' are happening, all through no fault of its own.
This gives a great deal of 'weight' to the maxi who claims all other coins are just noise and need to go away. I personally want to see a healthy garden grow, especially where regulation allows projects to do what they wish to do. But, the economic reality is that a landscape where every coin trades in pairs with every other coin doesn't make much sense and would not end well for many coin's volume, and Bitcoin's price and volume are highly unlikely to take much of a backseat to anything in the top 10 for longer than a massive pump. As long as that is the case, long term HODLing in alts comes with some extra risk, but short term bursts of high interest from newcomers is much, much, much easier to pump than Bitcoin and Ether as well.
It's all relative, and it's all connected.
That's Gordon's point for today.
And until next time my friends, Crypto Gordon Freeman, for now... out.
