Understanding the difference between the Bitcoin and altcoin crashes

James Bennett , 10 Apr 2018 - AltcoinBitcoinCryptocurrency

After the precipitous drop in market caps across the cryptocurrency market this year, it's reasonable to wonder whether interest in advancing blockchain technology has waned. But knowing why major assets like Bitcoin have weathered the storm better than altcoins helps us understand how and why they might recover.

The Bitcoin price crash of the first quarter this year was somewhat inevitable. That’s not a reflection of the technology but of the fear and greed that drives amateur investment decisions. With the altcoins' crash trending with Bitcoin, who are the biggest losers and should we stick around for the next chapter?

Will the cryptocurrency market recover this year?

To reiterate a point made in a previous blog, this Bitcoin price crash is only temporary. Whilst the Bitcoin price has declined in sync with a crash in altcoins, the technological capabilities of these cryptocurrencies has accelerated through the start of this year. It’s only going to get better as more resources pile into the cryptocurrency space. Further, emerging regulations are positive signs of institutional money (think private equity and hedge funds) getting stuck in. With prominent social media platforms banning adverts for “scammy” ICOs and countries such as Japan and South Korea stepping up regulation, we expect to see huge capital inflows towards the second half of this year 

For those that bought Bitcoin on credit card at the height of the boom this may not come as much respite. However, for those that invested what they can afford to lose, the market will return to its former glory by the end of 2018. Remember, you only lose when you sell.

 As the Bitcoin price crash intensified, the market flipped from greed to fear and an altcoin crash followed.

Why pay attention to the biggest losers in a crash?

Identifying the biggest losers can help us to make our future investment decisions. Those that fall the furthest in an altcoin crash are likely the cryptocurrencies built on hype and speculation. Whilst the technology may be solid, the market significantly overvalued the cryptocurrency given its current capabilities. For those more experienced investors, think of it as having a P/E ratio (price to earnings) that vastly surpasses the market average.

Cryptocurrencies that fall the least during an altcoin crash are likely to be built on strong technology, have a committed community of investors and have high-quality engineers working on the technology. In our experience, these high quality projects should be a significant part of your cryptocurrency investment portfolio.

Who are the biggest winners and losers in crypto?

Looking at the Bitcoin price crash vs the altcoin price crash, it’s fair to say that Bitcoin still weathers the storm better than most altcoins. Using data from the ATH altcoin index, Bitcoin is placed 7th in terms of current price vs its all-time high. This means altcoins have generally lost more value than Bitcoin during the recent slump - a sign of the the pioneering blockchain's resilience and the loyalty of its community as bag-HODLers. The altcoins outperforming Bitcoin include the cryptocurrency exchange Binance (BNB), privacy coin Monero (XMR) and smart contract protocol Aeternity (AE). Of those altcoins that peaked before the Bitcoin price crash, the multi-chain protocol by Bytom (BTM) has outperformed all other coins.

The biggest losers in the altcoin crash include two Bitcoin forks, Bitcoin Diamond (BCD) and Bitcoin Gold (BTG) as well as privacy coin Zcash (ZEC) that are down around 96 percent from their all-time highs. Whilst it's surprising to see strong projects such as Cardano (ADA), Siacoin (SIA) and Nem (XEM) with around 80 percent drop on ATH Coin Index, it's a reflection of their being overvalued during the recent bubble.

In conclusion

With the cryptocurrency market down around 70 percent from its peak total value in 2018 some investors are left questioning whether the technology can fulfill its promises. As an active participant in the cryptocurrency sphere I can assure you there are more conferences, hackathons and lines of code in Github than ever before. The fall in prices is negatively correlated to the progress of the technology.

What does all this mean? That’s for you to decide, just keep in mind the investment philosophy of Mr Warren Buffet, “Be fearful when others are greedy, and be greedy when others are fearful.”