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 currently is trading at $252.
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 Litecoin.
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.
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 if Litecoin is priced at say $300 and Bitcoin at say $13,000, that makes private investors think Lite is the next Bitcoin because they think $300 will go to $13,000.
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. Whilst it may take a traditional stock, like Microsoft a year to go from $50 to $100, the point is the number, not the timeframe.
You see, users forget they can buy fractions of Bitcoin, so in a sense, it’s price per coin is irrelevant. Its 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.
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Bringing up the rear
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*. Its technology will help in compliance and identity recognition.
IOTA: This one doesn’t even use the blockchain but its 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.
This article was written by Alpesh Patel, a hedge fund manager and author of Trading Online (Financial Times). Patel is a partner to 24option, offering CFD trading on Cryptocurrencies.
The content of this article constitutes Marketing Communication and does not qualify as Investment Advice or Investment Research. 24option accepts no liability for the content of this article, or for the consequences of any actions taken on the basis of the information provided.