So you think you’re the first to think that you missed out on the huge Bitcoin rally, and surely there must be a smaller copy-cat you can get in on? You know, missed Yahoo, so bought Google when it came out?
After all, elephants don’t dance is the old stock market adage, so surely there are smaller stocks worth keeping an eye on.
Traders look for instance at the recent Litecoin example. A currency which is meant to mimic Bitcoin in that it is supposed to be faster at settlement and with a greater supply of coins. Well it went from $100 in the first week of December, to $370 by the middle of December.
And without any news, any announcements, no new major institutional user or investor. So the reason? Access. Coinbase made it possible for more people to access Lite.
Exactly how big is the popularity of such exchanges for trading. Well, if you remember the dot-com boom, then here is an interesting fact – Coinbase already has more customers than Charles Schwab. Over 10m to be precise.
You see a key reason for the push is UX – user experience. I know from my years of trading online, writing about trading online in the Financial Times, presenting on trading online on Bloomberg TV – that the simple fact that Lite is priced at say $300 and Bitcoin at say A$13,000, makes private investors think Lite is the next Bitcoin.
And in a stupid, dot-com kind of way, this is what the users want you to think. It is not new to the market. It is a general rule of thumb that US stocks grow from $50 to $100 and then split. Sure, not a strict rule, but it didn’t half fuel quite a few rallies.
You see users forget they can buy fractions of Bitcoin, so in a sense it’s price per coin is irrelevant. It’s value is more important. But when did you meet rational investors, let alone speculators?
Or as Barberis at the University of Washington put it in 2005 “In addition, prior studies show that investors with a taste for gambling concentrate their trading in lottery-like stocks with high skewness and volatility and low nominal prices.”
Basically, it’s a lottery ticket to people who see nominal prices as a sign of value. And that is the attitude of many people. But then again, trading and investing is about buying low and selling higher. Whether you sell to a fool or not is irrelevant, as long as it is higher.
Bringing up the rear
Other currencies seemingly benefiting from this no news rallies inclue Verge, Iota, Monero, Tron, Qtum, Cardano and I am sure you can name your favourite too.
Verge: Supposed to be better than Bitcoin by making transactions untraceable so maintaining privacy. It has a market cap over a billion US dollars. Never in the history of the markets have so many become so big so fast. Leave your morality at the door.
Tron: A market cap of $3 billion and its goal is to use the blockchain to allow users to control data they publish and how it is distributed including cost.
Cardano: Used for smart contracts and already worth $14 billion. It’s technology will help in compliance and identity recognition.
Iota: This one doesn’t even use the blockchain but it’s focus is zero fees in peer to peer transfer. Again a crypto solving one but not all problems. If you think that problem is really important, then this is one for you.
Monero: After celebrities such a Mariah Carey started accepting the coin, this crypto whose aim is to hide origin and destination of transactions, started skyrocketing.
Qtum: This aims to be the best of Bitcoin and Ethereum by using the Bitcoin blockchain and its proven reliability and using Ethereum’s smart contract flexibility.
Alpesh is a hedge fund manager and Author of Trading Online (Financial Times). Alpesh takes a limited number of trading and investing apprentices: www.alpeshpatel.com/go