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The myth that “cheaper old coins bring higher returns” has its shortcomings

July 14, 2020

For many investors, trading cryptocurrencies remains a matter of poverty and prosperity, with inexperienced investors hoping to get rich by buying the cheapest alternative currencies, as many beginners did in 2017.

Currently, most traders do not expect Bitcoin (BTC) to pump 50% or more in a week because $ 18,400 doesn’t seem feasible. On the other hand, many of these investors are willing to put their hard-earned funds below a lower limit, cheaper alternative currencies in the hope that buying cheaper cryptocurrencies will lead to higher returns.

A quick look at the CoinMarketCap index shows that 39 coins from the top 60 were below $ 3 on July 12. Still, investors looking to get a quick return on the cheapest coins should think about the chances of choosing winners.

The myth that “cheaper old coins bring higher returns” has its shortcomingsThe myth that “cheaper old coins bring higher returns” has its shortcomings

As the previous years have shown, alternative currencies can also gain relevance if the cryptocurrency markets remain relatively stable with increasing market share. These periods are commonly referred to as the Altcoins season and can range from a few days to a few months.

The domain dips from Bitcoin triggered altcoin rallies

There is no clear definition of an altcoin season, although this generally implies a significant decline in bitcoin dominance. Reducing Bitcoin’s domain chart by just 3% leads to a valuation of $ 8 billion, which leads to a market capitalization of $ 100 billion for alternative cryptocurrencies.

If you look at last year’s 15-day periods, you can find those moments of altcoin euphoria that tend to occur in bullish or neutral cryptocurrency trends.

As Bitcoin loses a significant level of support or is facing declining trends, investors tend to avoid risk in alternative currencies, increasing the dominance of BTC.

Previous seasons of Altcoin

These four cases leave significant traces and the recent fall of 2.2% to the current range of 63.8% on July 11 was closed. The highest BTC dominance drops within 15 days are listed below.

Bitcoin dominance changes over a period of 15 days. Source: Cointelegraph

Bitcoin’s domain changes over a period of 15 days. Source: Cointelegraph

Bitcoin share of total market capitalization (dominance). Source: TradingView

Bitcoin share of total market capitalization (domain). Source: TradingView

The graph above shows four recent cases where altcoins have gained ground versus Bitcoin’s market cap. If the myth that inexpensive coins have greater potential persists, you should see them outperform the remaining alternative currencies in each of these alternate seasons.

It should be noted that the outstanding number of coins primarily determines the unit price of a cryptocurrency. Founders can arbitrarily choose between billions and billions of potential coins in circulation, which affects their unit price.

BTC dominance fell 4.8% from January 30 to February 14

The year 2020 started strongly for Bitcoin and reached the level of USD 9,330 after a 30% rally in January. It was no different in early February, and alternative currencies continued to rise until Bitcoin peaked near the $ 10,400 level. BTC’s dominance reached its lowest level in seven months, marking a massive upswing in altcoins.

Best coin performance under $ 3. Source: Cointelegraph

Best performing cryptocurrencies among currencies under $ 3. Source: Cointelegraph

26 of the 38 cryptocurrencies with a price below USD 3 in the top 60 were able to overcome the increase in the market capitalization of altcoins by 35.2%. That’s a remarkable hit rate of 68% in favor of these cheap coins.

On the other hand, 16% ended the period with a delay of 10% or more, which is a somewhat positive result for those who bet on cheap cryptocurrencies.

Altcoins total market cap. Source: TradingView

Total capitalization of the altcoins market. Source: TradingView

The graph above shows the exact periods of exuberance of altcoins that are visualized by their market cap. The high of $ 109.4 billion at the beginning of February should be highlighted, marking the highest since July 2019.

BTC dominance fell 3.5% from September 6-21

At the beginning of September 2019, Bitcoin was relatively stable at USD 10,300 and recovered from a sell-off below USD 10,000. For some reason, investors decided to increase their exposure to altcoins, reducing BTC’s dominance by 3.5%.

This could have been a technical adjustment as BTC’s dominance rose to 73% and peaked since July 2017. In both cases, investors found that they were more interested in alternative currencies at the time, causing a 14.4% recovery over the 15-day period.

Worst performance among coins under $ 3. Source: Cointelegraph

Worst results on coins under $ 3. Source: Cointelegraph

Only 10 out of 42 outperformed the altcoins market, while half ended the period at 10% or less. It should be noted that Ether (ETH) grew 25%, EOS 23% and Dash (DASH) 21% over the same period. This time, the low-price coin strategy didn’t work.

BTC dominance fell 3.4% from January 7-22

After going through the entire month of December, Bitcoin opened in 15 days from $ 7,175 to $ 8,800, but the digital asset was unable to break the resistance of $ 9,000.

Altcoins are already moving strongly with the overall market and are pushing even more for the next week. Altcoins’ market cap rose 24.7% over the 15 days to reach $ 77.6 billion.

Worst performance among coins under $ 3. Source: Cointelegraph

Worst results on coins under $ 3. Source: Cointelegraph

Only 6 of the 41 coins priced below $ 3 outperformed the broader altcoins market, a pretty impressive 83% failure. 27 of these cheap cryptocurrencies ended the period with a delay of 10% or more.

At the same time, Bitcoin SV (BSV) rose 168%, Dash 95%, ZCash (ZEC) 62% and Bitcoin Cash (BCH) 40%.

BTC dominance fell 2.7% from March 25th to April 9th

March 12 will be remembered forever, as Bitcoin has dropped 50% in eight hours. Despite the partial recovery after the next few weeks, Bitcoin was trying to break the $ 7,000 level.

Investors turned to altcoins, whose market cap recovered an impressive 23.4% to $ 71.6 billion.

Worst performance among coins under $ 3. Source: Cointelegraph

Worst results on coins under $ 3. Source: Cointelegraph

Only 7 of the 41 cheap coins were able to outperform Altcoin’s broader capitalization. On the other hand, 14 of them ended this period 10% or more behind.

Buying the cheapest currency theory doesn’t hold up

In the past four periods, in which altcoins have risen compared to the price of Bitcoin, the three cheapest coins have outperformed in only one case. On average, 69% of these cryptocurrencies under $ 3 underperformed the broader altcoins market.

On average, 40% of low-priced coins managed to end those 15-day periods 10% or more behind Altcoins’ market cap gains. Therefore, one can say with certainty that buying the cheapest cryptocurrencies is not the best option for an investor to choose during an Altcoin rally.

While it is possible to find strategies to optimize returns with cheap alternative currencies during the Altcoin season, this arbitrary indicator alone does not lead to higher returns than the broader Altcoin market.

The views and opinions expressed here are solely those of author and do not necessarily reflect Cointelegraph’s views. Every investment and trade movement carries risks. You have to do your own research when making a decision.