Wednesday, 27 May 2020

A Successful Crypto Strategy That Ignores Price?

One of the most important features of the cryptocurrency world is its extreme volatility.
One need look no further than the price of bitcoin (BTC), the world's leading digital currency, to see evidence of this. At the midway point of 2018, BTC had fallen by well over 50% from where it started the year. Before that, it climbed dramatically; its highest price in 2017 was nearly 20 times where it had begun that year. Along with the volatility comes the fast-paced analysis game that sees investors trying to predict when the markets will rise and fall and planning their investments accordingly.

As in other areas of investment, this is a difficult task at best, and yet it remains a prominent strategy among cryptocurrency enthusiasts. Now, BlockSpace Solutions co-founder and CEO Victor Hogrefe has proposed a new type of cryptocurrency investment strategy that might be able to do away with the ups and downs of token prices entirely.

Relative Coin Rank

Hogrefe acknowledges that, in spite of the fact that cryptocurrencies have grown in popularity by a considerable margin in the past two years, we remain hard-pressed to point to solid financial information when we make a selection of a coin in which to invest. Many investors take the time to learn about a potential crypto investment opportunity, the development team behind the project and the plans and ambitions for the project. Due diligence is key, just as with any other investment strategy.

Hogrefe suggests that we might bypass consideration of price fluctuations and instead focus on the relative rank of cryptocurrencies when planning an investment method. The idea suggests that every coin and token can be ranked based on its market cap. This is the reason why we often say that bitcoin is the world's top cryptocurrency—it has consistently maintained the largest market cap relative to its competitors. When viewing these rankings of coin against coin over time, patterns begin to emerge. These patterns can then be helpful in driving investment decisions.

General Ranking Observations

In his early work in this strategy, Hogrefe has noted several features common to most of the 1,600 or so coins he has researched. Generally, coins tend to lose rank over time. They are at their strongest soon after they are launched. The top 10 coins, though, remain relatively stable in their position. At the same time, an exponential increase in the number of coins available forces all other tokens to jostle for rank.

Hogrefe has identified about 40 tokens that have defied the first of these traits, rising in the rankings over time. Most of these tokens are quite young, having only been in existence for six months or less. If someone had picked those "winning" tokens in January 2018 and held them up through July, they would have seen about 4% in gains at a time in which the overall cryptocurrency market is significantly down.

Which tokens are in this "winning" pool? Hogrefe points to exchange tokens like binance coin and bibox token, perhaps because they are seen as bond-like in nature thanks to exchange support and stability.

It's easy to point to tokens that have done well in the past and suggest having invested in them earlier, but what about making predictions for the future? This becomes a trickier proposition. Coins tend to either remain stable in position (typically only if they are among the top five or 10 coins by market cap), to continually rise, to continually fall or to rise briefly and then fall in a wave-like pattern through the ranks. Investors looking to maximize profits using this technique would likely seek coins that continually rise in ranking—or perhaps those that rise and then fall, so long as they can correctly time when to buy and sell. There remains work to be done to turn this strategy into a broadly viable one. However, the fact that it avoids the flurry or extreme price fluctuations may make this approach an enticing one for many cryptocurrency investors.

Legal disclaimer: The insight, recommendations and analysis presented here are based on corporate filings, current events, interviews, corporate press releases, and what we've learned as financial journalists. They are presented for the purposes of general information only, and all the information belongs to the original publishers. These may contain errors and we make no promises as to the accuracy or usefulness of the information we present. You should not make any investment decision based solely on what you read here.

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