With the stock market closed over the weekend,, providing relief to weary traders after a painful week, the same cannot be said of cryptocurrencies. Unlike the stock market, cryptocurrencies are traded 24/7. It looks like both Bitcoin and altcoins are in for a rocky time.
If cryptocurrency traders had hopes of altcoins providing them refuge from the Bitcoin sell off, they are probably going to be disappointed.
Altcoins traditionally have only ever risen astronomically due to a price rise in Bitcoin. As more profits are made on the Bitcoin price rise, traders diversify into altcoins looking for even higher gains.
The opposite generally happens when Bitcoin has a large sell off. Altcoin traders liquidate their altcoins to reduce their exposure and make back some of their losses on Bitcoin.
This behaviour mirrors traditional investors. As we have seen this week with the large sell off in the stock market, other assets are then liquidated to cover their losses.
Cash is king
For many traders, both traditional and cryptocurrency, the safest position to currently be in appears to be cash. This reduces their risk to the volatility that we are currently witnessing.
Cryptocurrency traders have the option of converting into many stable coins, this provides an easy off ramp out of cryptocurrencies.
#ForexReserves | Total reserves for Week-ended March 6 up $5.6 bn & foreign currency assets up $5.3 bn pic.twitter.com/wz8ePsC1YX
— CNBC-TV18 (@CNBCTV18Live) March 13, 2020
While altcoins can appear to be helpful during a strong bull market they are generally best avoided when going through a bear market. Currently, Bitcoin does not appear to know which is which. For this reason it makes sense to avoid altcoins and perhaps currently, to avoid aggressively trading Bitcoin itself until it can find a more stable trend.
If altcoins ever do decouple from the price of Bitcoin then perhaps they could one day serve as a form of hedge. This looks unlikely for the foreseeable future, if ever though.
This is not financial advice.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.