I am still deep in the crypto-swamp, down 40-50% most days since the beginning of July ‘22. I do think things are slowly improving (not at an all-time low anymore!) but it’s going to be a slog, so not much to report on portfolio gains or losses.
Instead I’ll share a more interesting observation about correlation between coins:
Bitcoin rules
The coins fluctuations in price are very tightly correlated with movements in Bitcoin. This has been well-covered in the media. To me this indicates a lack of maturity in the market– most investors don’t understand/care about the technical distinction between coins so the movements in price have nothing to do with the underlying technology. It’s just a bison herd moving in unison.
This is frustrating because when I bought, it seemed to me that proof-of-work coins (Bitcoin) had an obvious shelf-life and proof-of-stake coins (Ethereum, Polygon, etc.) were the future. I still believe that to be the case, but Bitcoin’s shelf-life may be longer than I expected. I presume this is what investing in the early web was like– lots of money going to web-things without much thought about what the web-things were doing.
When prices fall, inter-coin volatility falls
This is a trend I haven’t seen covered in the media. Within my portfolio there’s plenty of variation in price within the past year:
But what’s interesting is that as prices have fallen this year, the inter-coin volatility has also fallen. See below how the lines have gotten a lot tighter toward the end of the graph (high res version here):
Enhance:
If the graphs had looked like they did today when built my portfolio in March ‘22 I may not have spent as much time figuring out what to buy– it all seems about the same.
What explains the reduction in inter-coin volatility? I have a few theories:
Casual investors were driving the volatility and as the market dropped the casuals got out
As people lose money they become more risk averse/more poor and are trading less
As people lose money they question their decision making skills and feel more comfortable following the bison herd
Coins have less money and have less resources for promoting their stack
The media/influencers are putting out a lot less “this is the coin to buy” right now content
Any other ideas?
And another question: which one is the “true” state? High inter-coin volatility or low inter-coin volatility? I am biased in thinking that the coins are actually quite different (someone tell me my homework meant something) so to me the low inter-coin volatility feels false but I am interested in hearing what you have to say.