Many traders choose to trade altcoins over bitcoins due to their higher volatility during crypto bullish and bearish trends.
LONDON, UK, August 1, 2022 /EINPresswire.com/ — During the previous crypto bull run, altcoins significantly outperformed bitcoin’s return on investment (ROI) from the March 2020 low to the November 2021 high. impressive return on investment of approximately 1,600%. Compared to traditional stocks, this is more than an order of magnitude, or 10 times better. For example, the S&P and Nasdaq provided 120% and 145% ROI from their March 2020 lows. However, when you compare bitcoin returns to crypto-altcoins, bitcoin starts to look like a stock of value. Bitcoin’s main rival by market capitalization is Ethereum, which has generated an astonishing 5,500% return on investment, about 3.3 times more than Bitcoin. Some will argue that Ethereum is not a real altcoin, so let’s take a deeper dive into the world of altcoins using Solana as an example. From April 2020 lows to November 2021 highs, Solana has returned an incredible 50,000% – almost 30 times more than bitcoin and almost 10 times more than ethereum.
The market perception of bitcoin is that it is less risky and safer than altcoins, which reduces the advantages over altcoins. This reduced risk outlook can be attributed to the fact that bitcoin has stood the test of time and thrived for over 13 years – the longest of any cryptocurrency. Bitcoin is also the largest by market capitalization and has the most liquidity on exchanges and the highest trading volume. This can lead to increased capital needed to absorb the larger amounts of liquidity when investors and traders buy and sell, resulting in less volatile price movements and arguably lower upside in the short term.
Gabriele Musella, CEO and co-founder of the crypto auto trading platform Coinrule (https://coinrule.com/crypto-trading-bots/), discusses the trends they have noticed regarding the coins their users have traded over the past three months. Musella says, “One of the main reasons we created Coinrule was to allow crypto investors and traders to protect and grow their portfolios in all market conditions without staring at their screens all day. . We have seen the majority of our users trading altcoins due to the increased volatility in their price movements compared to bitcoin. This increased volatility can allow more trades to take place when using our system, which can lead to increased profits when using the right strategies.
Over the past 6 months in the crypto market and financial markets in general, we have seen some serious declines – with the majority of the hardest hit altcoins down over 90%. When you are bullish and long on an asset, your goal is for it to continue to appreciate as the value of your holdings increases along with price increases. Conversely, when you are bearish and sell short, you want the asset to depreciate as much as possible in hopes of buying back the lower asset for a bigger profit. This makes altcoins again more desirable for trading due to their increased downside compared to bitcoin, which leads to increased profits when selling short. Coinrule also noticed that this has been the case with Musella detailing the most traded altcoins: “The most popular altcoins over the past few months have been Solana, Avalanche, Cardano, XRP and also Terra. This is because they are some of the most popular coins to hold due to their relatively low perceived risk compared to smaller cap coins, but also because they still have strong upside potential and good volatility to trade with. We particularly saw users making significant profits using our scalping-focused bots both short and long during the Terra crash, where there was substantial upside and downside volatility.
Musella notes that Coinrule also has the ability for its automated strategies to scan the market, detect and trade any coins that meet the conditions set by the bot. “We have a feature called ‘Any Coin’, which tells the bot to scan the market and find coins that meet the conditions defined in your rule. The bot will then buy the coins that best fit the conditions. These are often altcoins because of their increased volatility, especially if the rule is trading based on price movements and moving averages.Our users love this feature because it allows them to not have to specify coins to trade with and allows the bot to doing all the hard work to find the right coins to buy and sell with no market knowledge required from the user.
Trading altcoins can also be risky due to their lack of liquidity in order books, making them less attractive to trade due to increased slippage affecting profit margins when trading large positions, but Coinrule has that covered. Musella describes that Coinrule also has a safety feature to minimize the risk of trading illiquid coins with low market caps: “We have implemented a feature that can set a minimum market cap for coins that the rules can trade. The goal is to prevent the bot from automatically trading riskier coins that are less liquid and have lower trading volumes, which would lead to less desirable and inconsistent trade executions.