Altcoins: How to tell when to sell

There are now over 7000 cryptocurrencies according to CoinMarketCap. Altcoins is the term ascribed to any cryptocurrency that is not Bitcoin, which is of course the current leader by a large margin and accounts for nearly 60% of the entire cryptocurrency market in USD. If you are reading this article, you are probably into cryptocurrency and this means you have heard about a few altcoins and may have even invested in some of them.

While some people are skeptical of most if not all altcoins, the fact of the matter is that if you are looking to get very wealthy in a short amount of time, putting your money on the right altcoin is the way to do that. The problem is that people who develop altcoins know this, and they use it to their advantage. They know that people who want to make a quick buck (or in some cases, are desperate to do so), are going to throw their money into any well marketed product.

We have already written an article about how to spot a good cryptocurrency, so we will not cover that here. Instead, we are going to make a short list of indicators which will help you figure out when the time has come to sell the cryptocurrency you have invested in. Note that this is not financial and we recommend we do your own research, but we hope this article will help you with said research.

1. It is not going to be bigger than Bitcoin

Bitcoin dominance

If you have spent more than 5 minutes interacting with any cryptocurrency related content on social media, you will know that there is no shortage of claims and predictions that this or that cryptocurrency will rise 100x+ in price. Here is the first rule of thumb when it comes to price expectations: there is no way that the market cap of that cryptocurrency (the price of the cryptocurrency x its total supply) is going to be larger than Bitcoin. So, take note of the total supply, and see how much each coin would need to be worth for it to crack the top 10. This will give you a rough estimate of how much it could appreciate in the short term.

2. Is it better than Ethereum?

Ethereum dominance with Bitcoin removed

If you are a big investor in altcoins, you have one big advantage over those who are 100% in Bitcoin: you are fundamentally comparing the cryptos you are holding to other cryptocurrencies. As mentioned in the previous point, you have to do some dirty math to get a sense of what the upper limit of the price of your cryptocurrency could be. Now, you have to go one step further and ask yourself whether the cryptocurrency you are invested in is better than the current competitors. In short, you need to apply the same valuation logic to Ethereum, XRP, Chainlink, etc.

Here is the interesting thing: although the price of cryptocurrencies tends to change, their ordering does not. This is what you have to look out for. For many months now, the order of the top five has been: Bitcoin, Ethereum, Tether, XRP, Chainlink. The first is a store of value, the second is a platform which literally runs all of Web3.0, including DeFi applications, websites, and underpins thousands of other cryptocurrencies including Chainlink. The third is the most popular asset to trade against other cryptocurrencies with, the fourth has strong ties to legacy finance, and the fifth makes it possible for most applications on Ethereum to work.

Now, ask yourself, is the cryptocurrency you are a fan of able to crack the top 5? Can it even crack the top 10? This requires some further research and understanding of the top 10-20 cryptocurrencies. This YouTube channel can help you with that.

3. Half as good as last time

Bitcoin’s stock to flow model

While it would be nice if the cryptocurrency space was a bit more stable, until people understand the true value of this technology, the speculation which gives rise to such incredible volatility is going to remain. It is generally agreed upon that the value of the cryptocurrency space will continue to grow, at least for the next few years. There are dozens of data science models which are trying to estimate the price of Bitcoin over the next 1-2 years, and this is incredibly important to know if you have altcoins.

Recall the first rule of thumb – your favorite cryptocurrency (assuming it isn’t Bitcoin) will not be bigger than Bitcoin, at least not any time soon. Second rule of thumb – your favorite cryptocurrency (assuming it isn’t in the top 5 or top 10) is probably not going to be bigger than any of the top 5-10 cryptocurrencies, as least not any time soon. However, the price of Bitcoin is going to change, and so will the price of the other top 5/10 assets. As we just mentioned, the price is probably going to up, but by how much?

Many investors, traders, and data scientists are banking on a 100 000$USD Bitcoin in the next 1-3 years. This would be a 10x move from Bitcoin’s current price, giving it a market cap of over 2 trillion USD. This could be a bit of a stretch, so let us be conservative and say that Bitcoin will probably see a 5x move to 50 000$USD, putting the entire cryptocurrency market at a market cap of around 2 trillion. This seems much more realistic, and perhaps you may disagree, but in any case, assessing the future price of Bitcoin is critical here, It will determine how high your altcoin can move.

Let us take Waves as an example. Waves is ranked 60th and has a market cap of around 250 million USD, giving it a price per token of about 2.5$USD with a 100 million supply (that is slightly inflationary). Without worrying about Waves’ slightly inflationary supply, if the price of Bitcoin was to go up x5, this would give Bitcoin a market cap of around 1 trillion, so we know that the price of Waves could not possibly go above 1000$USD, because then it would be worth more than Bitcoin. It could however, theoretically crack the top 10 (if you think so).

The last 3-4 cryptocurrencies in the top ten have a market cap in the 3 billion range. If Waves was to catch up to them now, this would mean a 10x increase in price, a nice return on investment. However, if it was to catch up to them when they had increased in value roughly to the same degree as Bitcoin, this would mean a 50x move for Waves, a seriously good return on investment. This is assuming that they also pull a 5x move like Bitcoin, which is arguably more likely for older and larger cryptocurrencies.

4. The supply of the altcoin

The distribution of the Band token supply

This final point may not apply for the altcoin(s) you are holding, and it involves the supply of the cryptocurrency in question. Not just the total supply, but whether that supply is inflationary, and most importantly, whether it is already 100% in circulation. For most cryptocurrencies, the developers, investors, founders, etc. all keep a cut of the cryptocurrency they built. In some cases these funds are locked for a set period of time, in others they are not.

Depending on the cryptocurrency, you could see much smaller financial gains if a large percentage of the total supply is owned by people who were directly involved in developing the project. This is because they will most likely sell their assets at or near the peak of its price. The effect of this of course is that the cryptocurrency will not reach the heights it could otherwise have were it not for this sudden flood of supply. Make sure that you do your own research here. You are in luck if the cryptocurrency you invested in is Ethereum based, because it is very easy to see how many whales there are.

If the cryptocurrency you invested in has its own blockchain, you better head over to a website like Messari or ICODrops and see if you can find information about the ICO and how the tokens were initially distributed. There is unfortunately no way to measure what the threshold is for when the sudden flood of supply could affect the price and by how much. This depends on a wide variety of market conditions which could be speculated on forever. Just know that the less that a cryptocurrency is currently in circulation, the harder it will be for it to increase in price in the future when the markets get hot.

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