A Closer Look At Altcoin Trading
Trading cryptocurrencies is a process of exchange between two different currency pairs using crypto exchanges like Coinbase or Binance, but of course you need traditional currencies to “get into the game.”
But before we begin this risky undertaking….
The easiest thing in the world is to say “Don’t buy altcoins.”
But of course, you should not buy penny stocks on the Vancouver stock exchange.
Finally, you should not try to count cards at a blackjack table in Vegas while partaking of the free booze offered by those fine establishments.
But I would be a hypocrite if I wrote that. Because I have done all three.
Besides, I doubt you are reading New Currency Frontier for advice on how to interpret the latest quarterly earnings on Apple.
Onward then, on how to trade altcoins.
Altcoins: Where Do They Come From?
Before you buy something, it is a good idea to know what you are buying.
Some altcoins are backed by millions of dollars in funding and dozens, if not hundreds of developers.
But a lot of altcoins are backed by two guys working out of their basement with a website and a nice PowerPoint presentation.
It’s a LOT different than forex trading, where you can still lose money but at least the currency you are trading in isn’t going to go to zero.
In a hot market, even the altcoins created in Mom’s basement can go up. But that’s not really a good investment strategy.
In a market going cold, EVERYTHING will go down, AND FAST.
And that’s the first rule of trading altcoins: If the market is not hot, dump the altcoin.
These coins go to zero all the time. MOST of them go to zero. Check out this website:
But knowing what type of coin you have bought is the key to separating coins that have a chance of becoming a 10 or 20-bagger versus the no-chance coins that will be dead in one year or two.
Do you want to successfully trade altcoins? Don’t buy garbage to start.
There Are Multiple Kinds of Altcoins
All altcoins use blockchain technology.
But there are three distinct types of altcoins: tokens, forks, and original source code.
Let us look at all three separately:
Ethereum Tokens
Remember, tokens can be created by ANYBODY using the Ethereum network.
By writing an Ethereum smart contract, ANYBODY can create tokens and give them a name (like Barfcoins!) and issue millions, if not billions of tokens.
Then they can issue tokens to themselves, their buddies and by the way, anybody who is willing to pay for them.
And therein lies the problem. ANYBODY can create tokens on the Ethereum network, for the cost of some Ethereum.
The last time I looked, it cost about $2-5k of fiat currency to make a token on the Ethereum network.
During the ICO craze, promoters were raising millions in the cryptocurrency market with nothing to show buyers but tokens and a powerpoint presentation.
However, there are exceptions, like stablecoins like Tether and USDC.
Forked Coins
Every digital coin is a technology platform. It has a code base and usually the code is open source, meaning anybody can modify and publish the modified code.
When a developer or development team changes the code base of an existing coin, and the change is not accepted by the rest of the community, then the coin splits in two. That’s called a hard fork.
Bitcoin, the grandfather coin of crypto, has been hard forked 44 times since 2017. These include such coins as bitcoin cash and bitcoin gold, which have very little market value.
A “forked” coin is almost by definition a coin backed by a development team that has made changes to the code base that have been rejected by most of the community.
Hence the attempts by the Bitcoin Cash development team and the Bitcoin SV team to claim they are working on the one, “true” bitcoin.
But it must be noted, these coins have proven to be bad bets over the years.
Original Coins
How the source code of bitcoin was written is legendary.
It has a thriving and dedicated developer base. And that shows through in its valuation, with a total market cap of $522 billion USD
Another good example of a “coin” with an original code base is Ethereum which is second in valuation worth $223 billion.
Look at top five crypto-coins by market cap from three years ago. Three are original code, one is an Ethereum token, and one is a bitcoin fork.
Now look at the top five today:
That should tell that a good long-term trading strategy for altcoins is to not have one, unless it’s Ethereum.
Crypto coins with their own codebase and a thriving developer community are the “safest” (relatively speaking) coins to buy.
Or put in another way: a coin that is a) a fork or is a simple token of the Ethereum network and b) Has no development team, that’s a very bad sign.
And during the ICO craze in 2017-2018, there were a LOT of those coins floating around. And of course, in 2020-2021, it was meme coin paradise.
Long-Term Altcoin Trading
Ninety-nine percent of all altcoins are garbage, the one percent will change the world.
That’s not an original thought.
And once you find that one special one percent, it’s not enough to just hit the “buy” button.
Low trading volume, unregulated offshore exchanges, and anonymous traders make it altcoin trading happy hunting grounds for shady pumpers and dumpers.
I’m not talking about altcoins created by techies who have a vision for the future but no business sense and their vision ultimately falls short.
That happens all the time and that’s okay. Visionaries often fail. Success is grown in a vat of failure. No, I’m talking about altcoins where the price is manipulated.
I’ve lost money betting on the visionaries. I don’t lose sleep on that.
But losing money to traders on the other side of the trade who yank the price of the digital currency upand down like a yoyo is maddening.
One more thing: Technical analysis doesn’t work with altcoins. Don’t do it.
Short Term Trading: Watch out for Pump and Dump
This is a crucial rule: Don’t fall for scam coins.
Fortunately, altcoins that can be pumped and dumped are easy to spot.
Here’s one example.
https://coinmarketcap.com/currencies/iqeon/
First off, it’s important to realize that an altcoin doesn’t have to be a “scam” coin to be the target of price manipulators.
It’s actually easier if the altcoin is not.
Above all, there is one attribute of an altcoin that is attractive to a pump-and-dumper, and that is low trading volume in the cryptocurrency markets.
IQueon has that in spades.
With a market cap of more than $6 million USD, there is enough asset value for a sizeable payday if the price goes up..
But with a daily trade volume of under $40K USD, there is also a lot of leverage with just a small bump in trading volume.
Is a good investment opportunity? Put it this way: A 10K buy or sell order would give you serious price movement. A twenty or 30k USD order would dominate the market for that one day trading.
However, we also need to know a few more things, like, where is it traded?
Once again, the website coinmarketcap comes to the rescue. Only two exchanges list IQeon, and both are exchanges that don’t bother with KYC/AML regulations.
Altcoins and Manipulation
This is excellent news. If you want to manipulate altcoins, it’s best to stay anonymous.
However, we need to check one more thing. We need to see the order book.
I have an account with Yobit, never heard of Exrates, so we will just focus on the former:
The trading part IQN/USD on Yobit accounts for about 25% of the daily trade volume. As you can see from the order book:
Buying $600 of IQN for your portfolio will move the price 3.5% up. Selling $500 of IQN will move the price 4%. You don’t want to put a large investment in these tokens.
However, if the market for IQN is reasonably efficient, expect traders from the other trading pairs to jump in and try to cover your trades.
But as you can see, a few thousand dollars buy or sell can definitely move the market, for altcoin with a market capitalization and cap of $6 million USD.
If you are buying the trading altcoins as more of a hobby and for amusement, and only want to buy a few hundred dollars, maybe it’s okay.
But more than a thousand dollars? You can get in, but lack of liquidity means you can’t get it out of your portfolio without taking a serious haircut.
And look at the chart. IQeon has had a huge run, top of the chart.
Top of chart + Low trading volume = Watch out.
Has the price of IQeon been manipulated by pumper/dumpers? I don’t know and I don’t care. It’s enough for me to look at the order book and say no thanks.
But How Does One Profit by a Pump and Dump?
The mechanics of a pump-and-dump are beyond the scope of this article, but I can outline the basics.
Before the dump, you have to pump. But before the pump, you have to accumulate.
Meaning, you have to get as much of the altcoin at the best possible price. That means day, if not weeks, of gradually buying up as much altcoin as you can without moving the price up (too much).
That requires patience and sets the pumper/dumper apart from most altcoin traders, who merrily bash the buy button as a market order to get trade over in seconds, if not milliseconds.
After accumulating, you have to pump.
The best way to pump (for you), is to get other traders to buy the coin, by driving traffic to the coin website.
Best Strategy to Pump the Coins
- Posting on internet forums about you found the fantastic altcoin that is going to save the world.
- Posting on Twitter.
- Posting on Telegram (which is a real favourite of pumper/dumpers because it’s anonymous and untraceable).
- Getting OTHER traders to do any of the above.
- Bonus points if you can get gullible website owners to sing the praises of whatever coin you have accumulated.
- And finally, buying the altcoin itself to bump ever so higher (being a market maker).
Finally, after pump the altcoin price to a level where you have a healthy profit, you then head for the exit.
This is accomplished by either a quick dump (if there is enough volume to handle it) or be slowly selling off your shares while still telling everybody how much you love the altcoin.
Finally, when the last altcoin has left your trading account, it’s time to head to the nightclub.
Conclusion
There is nothing new under the sun. These VERY basic tactics of pumping and dumping explained here have been used by unscrupulous traders since the start of New York stock exchange in 1792.
But the rise of crypto has given these very old tactics a fresh start.
Anonymous trading, off-shore unlicensed exchanges, cryptocurrency trading and no scary regulators.
It’s still the Wild West out there, watch out for your bank account.
The Easy, One-Minute Drill to Avoid Crypto-Scams
This will sound hard but it’s easy. And very fast.
When a crypto mania comes along once every two or three years, my email box and Twitter feed get flooded with “opportunities” to invest in some coin or token.
I used to agonize over the Powerpoint presentation and check the Linkedin profile of the backers. Do a bit of research.
Now, I just ask for the public blockchain explorer URL that shows the transaction data of the token or coin.
What is that you may ask?
It’s a web-based tool that allows users to view and analyze transactions on a public blockchain. It provides a user-friendly interface to browse the blockchain, search for specific transactions, view transaction details, and track the flow of funds in real-time.
You can gain insight into the activity on a blockchain, verify transactions, and monitor the health of the network.
Most are open-source and decentralized, meaning anyone can access and use them without permission.
Short Term Altcoin Trading: Watch out for Pump and Dumps
If somebody is pumping you a coin or token and can’t give you a link to the public block explorer for that token, then run away.
Let’s look at just one of the many blockchain explorers for bitcoin:
https://www.blockchain.com/explorer/blocks/btc?page=1
And here is the blockchain explorer for Ethereum:
Now, if you are not a techie-time of person, you may find the volume of information on these blockchain explorers to be somewhat intimidating.
But you don’t have to understand all of it, it’s much more important to know that there is real transaction and volume data.
Let’s look at token which has somewhat less volume than the big two:
https://etherscan.io/token/0x0f5d2fb29fb7d3cfee444a200298f468908cc942
The MANA token was issued by the Decentraland team, who are trying to build metaverse-gaming trading platform.
There are a lot of transactions on this chain but you notice very quickly that most of the transactions are under $1000.
Meaning of course, that it’s a token for punters, not for serious investors wanting to put in a investment of $10,000 or more (unless they are patient).
This is NOT a Preferred Altcoin
Now you may be curious, what does the blockchain of dead token look like?
ttps://etherscan.io/token/0x6801adc8491b23103c947ef44d290fc8d62e8950
It has a market cap of zero and the last transaction was 120 days ago. Would you buy this token? Of course not
Yet, there are still a few websites out there pumping this token, and no, I’m not going to link to them.
But Dogefarm isn’t the worst, not by a long shot.
Conclusion: Investing is Hard, But Not That Hard
I’m not trying to give a crash course on blockchain analysis, I said this would be an easy, one-minute crash course on how to avoid blockchain scams.
Most scams can’t even offer you a blockchain explorer URL (if they did, you could see through the scam in thirty seconds or less).
That is to say, if and when a friend or acquaintance or ex-business partner, or anybody tells you about a hot new coin, that’s what you should be looking for.
If there is no blockchain explorer URL, then I don’t touch it with a ten-foot pole.
The ONLY exception to that rule is a private placement. But if you are doing one of those, that means you are an accredited investor, and you are probably putting $25k or more into the deal. And that (should) mean you have spent hours looking over the deal, and you know the players.
But most investors don’t want to put in that amount of work before they start trading.
To be honest, most people spend less time researching a hot new crypto coin than reading customer’s reviews on Amazon for when they want to buy a toaster.
Which is why I wrote up this easy guide. You want to know whether to “invest” in a token or coin or not, and you want to know why in less than ONE MINUTE.
Easy, check out the public blockchain explorer to do your own research. If they don’t have one, there is your answer.
