No matter which markets you choose, every proper investing strategy involves "the hedge." Because financial markets always have capital risk, no one is absolutely certain of their bets. Thus, hedging helps mitigate volatility that might occur in the primary investment.
(This article originally appeared on Crush The Street -- https://crushthestreet.com/articles/breaking-news/litecoin-perfect-cryptocurrency-hedge)
The CrushTheStreet Staff Is Consistently Researching The Most Important Investment Research. Our Goal Is To Magnify Your Financial Education At These Critical Times. Gain Immediate Access To Our Wide-Range of Top-Conviction Reports HERE!
One of the most common hedges for stock market investors is gold. Typically, as the equity markets rise, investors see little need for safe-haven assets like gold and silver. But if equities falter, a rush to safety occurs. Gold often soaks up this capital outflow, which makes it an ideal hedge against the benchmark financial indices.
But what about the cryptocurrency markets? Such vehicles are often considered a hedge against both traditional investments like index ETFs, and standard safe-haven assets. But what hedges popular blockchain currencies like bitcoin or ethereum?
The answer is litecoin! For the most part, blockchain coins have a strong, direct correlation with bitcoin. This simply means that as bitcoin rises, so too does other cryptocurrency assets. When bitcoin falls, it tends to take down other cryptos.
And no matter how many times alternative offerings like ethereum attempt to "de-lever" themselves from bitcoin, the hard numbers don't lie. For example, ethereum has a 52.6% correlation with bitcoin over the trailing month. Popular altcoins Steem and Dash are even more directly correlated at 73.5% and 84%, respectively.
Essentially, whenever bitcoin experiences any choppiness or volatility, many other cryptocurrency assets follow suit. This is particularly unfortunate when bitcoin runs into its own unique, fundamental challenges. For example, the scaling issue which threatened a softfork was a bitcoin-centric problem. Yet it negatively impacted so many cryptos that had nothing to do with scalability.
A notable exception is litecoin. At 39% correlation over the trailing month, litecoin has a weak statistical relationship with bitcoin. It may respond to the king of cryptos' movements, or it may not. As we have seen throughout June and most of July, litecoin is independent of bitcoin.
For those seeking a hedge within the blockchain markets, litecoin is an astute choice. While other coins were tanking under a softfork threat that didn't directly involve them, litecoin trading remained comparatively robust.
Thank you for sharing this post. I'm a big Litecoin fan. Not only do I own litecoin in my crypto portfolio, I am also mining litecoin to hedge against any unforeseen bitcoin or eth conditions.
I'm biased, but I think this is a VERY wise move! :)
Great article, I found it very informative. Keep up the hard work. Thanks
Thank you!
Interesting article @bullishmoney! Thanks for sharing and you got my vote:))
Thank you! God knows I can use as many votes as I can get! :)
Thanks, great information to consider. Interesting, is there any known reason to the reduced risk of litecoin correlation to Bitcoin?
Not that I know off-hand. I'll have to explore other metrics to see if I can narrow down an explanation. My guess is more robust sentiment and much more favorable transaction fees.
Great article. I see Ripple has 39% correlation too. I am following LTC for years and I have to admit that my first thought when LTC came out was : "copycat". But I have mined some because was easy to do on simple PC. I was not surprised that price is not going up in begin but today I see Litecoin as competitor to Bitcoin.
Yup, Ripple surprised me as well. It's an area where I will dig deeper ... will let you all know what I find!
You have a point: Litecoin price is relatively independent of Bitcoin price compared to other cryptos and it has its own upside potential. Still, a 39% correlation is, in my opinion, quite strong for a traditional hedge. Ideally, when choosing a hedge you would actually want something with a negative correlation to bitcoin price. Thus, while I agree that if you're looking for a hedge within the blockchain market, Litecoin may be one of the better options, currently traditional currencies are probably still the safer option (or currency-based tokens, if you want the best of both worlds and are willing to take a slightly bigger risk).
If it was possible to resteem comments, I would resteem yours!
Folks, this is how you properly debate!! :)
Note the absence of strawman arguments -- which drives me up the f*cking wall, by the way! -- and acknowledgement of what I actually said!
And it's true...39% correlation is super strong for a traditional hedge. But if you wanted to stay within the cryptocurrency markets, I think litecoin gives you the best shot (among the majors). Further research may or may not make that point stronger, as I'm admittedly only looking at trailing month...I will keep you all posted!
Thanks for your kind reply! Looking forward to your follow-up!
I've been wondering what cryptocoin might be a good hedge. I was leaning towards Litecoin until the recent spam attack on LTC, then I backed off. But looks like LTC has weathered the storm and is continuing to move forward. I like LTC in that it was the first to adopt Segwit and it has a good team. Appreciate your information here. Looks like I need to give LTC one more look!
Given the price discrepancy between BTC and LTC, I think it's wise to grab one or two LTC anytime you make full or partial entries into bitcoin. It gives you a nice hedging platform within the cryptocurrency markets!
Кто в теме с 2011???...ltc миник btc с ускоренной транзакцией..,..следите за Чарли..и все будет ясно..))..кстати, Китай большой?...ANS,ANS...)))...фокусы все впереди..,..крипто-это не рынок,а эволюция,говорю как бывший шифровальщик..)))
hey thank you so much for this post. i have been saying this to my friends and fellow traders for months now and you have now given me a wonderful reference to send them in order to further establish that point.
I'd include Monero too :)
Very good article. Good to see I'm not the only one who thinks like this. Buy and hold for the upcoming 3 years and the blockchain market will find it's way. I was researching a way to find more info about the current cryptocoins on the market. Besides coinmarketcap.com there is: https://www.coincheckup.com The site lets you check all there is to know about the team, product, communication transparency, advisors and investment statistics on every crypto. See: https://www.coincheckup.com/coins/Litecoin#analysis To see the: Litecoin Investment research.
hey, you can sign up here to get 100 free NLC2 (a coin for fantasy sports) Sign up for the free 100 NLC2: http://www.cryptofantasysports.com/User/Register?AflCode=RYGrBU1IW%2fa57Nduj%2flSFA%3d%3d and no its not a scam its just giving away for free as a marketing strategy. 100 nlc is worth around 4 dollars right now. It will be lowered to 25 free nlc2 tho.