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Cryptocurrencies, Ethereum, Dogecoin, Bitcoin, Litecoin, Tron, Dash

Does Crypto Belong in Your Portfolio?

Sep 14, 2021

By: Frank Kaberna

Ethereum - a cryptocurrency with a $400 billion market capitalization that’s second in the space only to Bitcoin* - fell more than 25% from its highs of a week prior at one point last Tuesday, September 7th. Nasdaq futures made new all-time highs the same day.

Correlations to Bitcoin

Technology Stocks

Stocks, in General

Gold

US Dollars

+0.3

+0.2

-0.1

-0.2

Source: Yahoo! Finance (https://finance.yahoo.com/)

It’s become clear that attempting to understand the crypto market by comparing it to popular existing indexes is as lazy as describing an athlete’s talent or musician’s sound in terms of another athlete or musician. It doesn’t get to the root.


How > What

Traders might want to start with movement, and appreciating how cryptocurrencies move might be more helpful than why they move. Asking why in trading can often be moot no matter the market given that it’s probably moved by the time you asked.

0914_smalls1.png


Source: Yahoo! Finance (https://finance.yahoo.com/) and STIX Index Data dxFeed Index Services (https://indexit.dxfeed.com)


This year alone, Bitcoin has both doubled and halved its value. Pit that kind of volatility against one of its most highly correlated stock sectors in technology and it isn’t even a fight. Not to mention that BTC is moving almost five times as much as STIX on a daily basis (see stats below).


Walk Before You Run

While this excitement has no doubt brought more participants to markets, which can be viewed as a very positive development for other financially active individuals, there is one potentially rough side to all of this:

Many entrants into markets are learning how to invest and trade using the most volatile asset class established in decades.

Of course, you have to cut your teeth somewhere but doing so with a product that has the potential to move thousands of dollars in a flash might not be the best way to kick off a long portfolio life. It’s seldom advisable to try anything new with its most chaotic version (examples include: swimming in deep end, hiking in Himalayas, option trading in naked short VIX calls).

Daily Move in % and $ (in 2021)

Micro Bitcoin

Futures

Small Crude Oil Futures

Small Technology Futures

Small US Dollar Futures

+/-5.3%

+/-$225

+/-2.1%

+/-$135

+/-1.2%

+/-$80

+/-0.3%

+/-$40

Source: Yahoo! Finance (https://finance.yahoo.com/) and dxFeed Index Services (https://indexit.dxfeed.com)

It’s hard to put cryptocurrencies in a box. They move like nothing else currently in the market, and they don’t seem to be going away anytime soon. But until everyday traders get a smaller, more accessible product, they might want to put that box on the shelf.

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*Ethereum data from coinmarketcap.com as of 9/9/21

© 2021 Small Exchange, Inc. All rights reserved. Small Exchange, Inc. is a Designated Contract Market registered with the U.S. Commodity Futures Trading Commission. The information in this advertisement is current as of the date noted, is for informational purposes only, and does not contend to address the financial objectives, situation, or specific needs of any individual investor. The risk of loss in the trading of stocks, options, futures, and ETFs can be substantial. Trading in stocks, options, futures, and ETFs is not suitable for all investors. Trading futures involves the risk of loss, including the possibility of loss greater than your initial investment.


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