Crypto Enters ‘Bitcoin Month’, But Is it Time to Buy Altcoins Cheap?

Given that bitcoin has been rising so strongly, and that its dominance of the overall market has risen back up to 45%, many a trader and investor may be tempted to put their money with the original cryptocurrency right now, rather than go for a seemingly more speculative altcoin. However, contrary to the instincts of many, now is arguably the perfect time to invest in (good) altcoins. Why? Because as basic economic logic dictates, now presents a great opportunity to buy various altcoins low, so that eventually they can be sold high.

Indeed, many of the leading altcoins remain as fundamentally strong as they were when they were rallying several weeks ago. But with capital seemingly shifting to bitcoin, they happen to be noticeably cheaper.

Its Bitcoin Month, But Not For Long

As the graph below illustrates, bitcoin is the fifth best-performing cryptocurrency of the past 30 days (out of the top-50 coins by market cap), being bested only by Shiba Inu (SHIB), Olympus (OHM), Axie Infinity (AXS) and Fantom (FTM).

Source: Blockcbaincenter.net

As we reported in a separate article, an uptick in institutional investment has resulted in the latest bitcoin rally, helped by increasing accumulation of BTC among long-term holders. In turn, this has resulted in market preference shifting from altcoins to bitcoin.

For instance, while bitcoin’s price has increased by 24% in the past 30 days, 32 of the top-50 coins have experienced a fall over the same timeframe. Solana has dropped by around 15%, while Internet Computer and Cardano have declined by 24% and 18%, respectively.

Needless to say, this divergence in performance over the past few weeks has led to more than a few Bitcoin maximalists making fun of altcoins, heightening the sense that now isn’t a good time to invest in alts.

Source: Twitter.com

Even more dispassionate and objective analysts appear to be suggesting that traders should adapt to the fact that bitcoin rose more quickly than most other altcoins over the past couple of weeks.

Source: Twitter.com

Alts Remain As Strong Fundamentally As Ever

Given that altcoins have continued to fall suggests that the market as a whole has listened to the initial batch of traders who ditched alts for bitcoin. However, now really is a prime time to invest in a select number of altcoins with good fundamentals, since these are now cheap compared to their ‘true’ value.

For instance, look at the chart below for Avalanche (AVAX). This is the native token of a platform that has witnessed considerable growth in recent weeks (in terms of total value locked in), and that has also attracted a $230 million investment from the likes of Polychain Capital and Three Arrows Capital. Its 30-day moving average (red) has sunk below its 200-day average (blue) since the beginning of the month, while its relative strength index (purple) has verged into oversold territory (before recovering a little to a more ‘moderate’ level).

Source: TradingView.com

Basically, Avalanche’s fundamentals haven’t changed since it hit an all-time high of $79.31 on September 20. Yet the rush towards BTC has resulted in it being sold off. This may be a bad thing for pre-existing holders, but for anyone looking to enter the AVAX it’s the perfect opportunity to buy at a discount.

Same goes, for instance, for Terra (LUNA), which has declined by 18% in the last seven days. As its technical chart shows, it recently formed a ‘death cross,’ meaning that one of its shorter term moving averages (here 30-day) fell below a longer term average (here 200-day). Similarly, its RSI continues to be low, indicating that its oversold.

Source: Twitter.com

Again, nothing has happened to the Terra platform to suggest a sudden loss of market confidence. Its total value locked in remains reassuringly high, while its ecosystem of projects/dapps continues to grow. It also successfully completed a mainnet upgrade at the end of September, further supporting the suspicion that it can only continue expanding.

Put simply, Terra is as healthy as ever, yet its LUNA token has taken an 18% haircut. Why wouldn’t you buy it if you were in the hunt for a good altcoin?

This kind of example could be extended to a wide variety of altcoins, with Ethereum (ETH), Algorand, Cosmos, Theta, Solana and Filecoin being some of the most notable.

At the same time, bitcoin’s technical chart has also shown its relative strength index entering overbought territory on more than one occasion this month. This means that, ironically, now may not be a good time to buy BTC, seeing as how so many people have piled into it at once recently.

Run Away from the Herd

Research published this summer by Pantera Capital does indeed suggest that the savvier trader should try to act contrary to the ‘typical’ retail investor, who tends to enter markets at the top and exit them at the bottom. This, in a nutshell, is the perfect strategy for losing money, or at least for avoiding significant profits.

“It’s human nature that we want to buy when the market is surging up — when the FOMO devil is whispering in our ear. When the markets are crashing — and our spouse/friends/boss are all WTF, we want to flee…we want the pain to stop,” wrote the fund’s analysts.

Supporting this analysis, Pantera shared a graph taken from market data it has been collecting since 2013. It showed that most investment inflows (i.e. most purchases of bitcoin) happen when the cryptocurrency is expensive, following sudden surges in price.

Source: Pantera Capital

As the chart above shows, more inflows have occurred when bitcoin was more than 875% above its historical trend price than for any other price bracket. In fact, what the chart shows is that, over the course of bitcoin’s history, more than 50% of its inflows have occurred when it was expensive, when it was above its average trend price.

At the risk of repeating ourselves, such a strategy — of buying high — is the perfect way of losing money. Instead, traders need to follow Pantera’s advice and look for windows when a cryptocurrency is at a discount compared to its ‘average’ or ‘historically suggested’ price. As with certain altcoins now, the wisest strategy is to hold off making investments until the market dips.

Indeed, this appears to be what some investors are doing as we type these very words: certain alts (SOL, AVAX, BNB, DOT, ATOM, XLM) are rallying for the first time in several days, with traders using their relative cheapness as an opportunity to make some money. This is the way to do it, unless you really are in it for the long haul, of course.