This piece is a follow-up to my earlier piece
, which looked at what would’ve happened if you’d purchased alt-coins shortly after the bottom of the 2013-2015 bear market. A lot of the constructive criticism that I received was that I was too bullish on alt-coins, and that the timing was too convenient. Although it’s fair to say that I am
bullish on crypto in general and alt-coins in particular (with several major caveats for both), I agree that it’s important to not just focus on historical analyses where it’s fairly clear that you could have earned money. So, today’s research question is whether you’d still be underwater if you’d bought in to the market at or near the 2013 all-time high. All information cited herein comes from the historical charts available at CoinMarketCap
This worst-case scenario analysis shows that $300 invested equally across 15 of the 40 coins in existence near the market’s peak in 2013 would be worth only $429.95 today—gains which are entirely attributable to Bitcoin, Litecoin, and Ripple. This is basic, but it can be dangerous to buy high. This is especially true of alt-coins, but even the top three coins in our sample saw fairly lackluster results when bought at the top of the market. Finally, nothing in this post should be taken as investment advice. This is only intended as historical analysis. Past performance does not guarantee future returns. A Brief History of the 2013 Market Peak
According to CoinMarketCap
, the 2013 bull market peaked on December 4, 2013, at ~$15.87 billion in market capitalization.* Thereafter, the market crashed dramatically not once, but twice. In the first crash, which occurred between December 5-8, 2013, overall market cap fell by ~39% to ~$9.66 billion. Then, after a brief recovery to ~$13.57 billion on December 10th, the market fell precipitously, to ~$5.7 billion on December 18, 2013. Thus, over the course of only two weeks, from December 4-18, 2013, the market lost ~64% of its value. Although this was by no means the end of the 2013-2015 bear market--which lasted for approximately 17 months and saw an additional decline of ~45% from the December 18, 2013 low--this was the end of the beginning. What If I Bought Crypto Right as the 2013 Market Peaked?
Generally, the first rule of trading is** that you want to buy low and sell high. As a result of their fear of missing out (“FOMO”), however, many people find themselves accidentally buying high. Today, I’m going to look at what would have happened to someone who bought their crypto right as the market was peaking. Ideally, I would run this experiment from December 4, 2013, but due to the limited data available from CoinMarketCap, I’m forced to choose
between November 24th, December 1st, December 8th, and December 15th. Of those dates, I have selected December 1, 2013
, because it represents the worst possible scenario for which I have data. On that date, total crypto market cap, which had hit a new high of ~$15.4 billion the day before, swung wildly between a high of ~$14.83 billion and a low of ~$12.18 billion. Unfortunately, it’s unclear exactly when CoinMarketCap’s snapshot was taken. That said, it’s clear that our hypothetical FOMO trader is about to lose his shirt over the next few weeks, so let’s dive into the specifics.
On December 1, 2013
, there were 40 coins listed on CoinMarketCap. I won’t list them all here, but of those 40, all but 11 are still listed as active on CoinMarketCap. The truly dead (or “inactive”) coins are BBQCoin (BQC; rank 16), Devcoin (DVC; rank 19), Tickets (TIX; rank 22), Copperlark (CLR; rank 24), StableCoin (SBC; rank 25), Luckycoin (LKY—ironic, I realize; rank 31), Franko (FRK; rank 34), Bytecoin (BTE; rank 35), Junkcoin (JKE—how apt; rank 36), CraftCoin (CRC; rank 39), and Colossuscoin (COL; rank 40).***
Now, since this post is already incredibly long, instead of testing all 40 coins, let’s take a decently-sized sample of five coins each from the top, middle, and bottom of the stack, and look at what happens. For the middle, although the temptation is to take decent alts, let’s fight that and take the group with the highest failure rate: ranks 21-25. So, here’s out pool:
- Top Five: Bitcoin, Litecoin, Ripple, Peercoin, and Namecoin
- Middle Five: Yacoin, Tickets, Ixcoin, Copperlark, and Stablecoin (ranks 21-25)
- Bottom Five: Junkcoin, Argentum, Elacoin, CraftCoin, and Colossuscoin (ranks 36-40)
Now, here are how our sample of coins has performed as of when I write this:****
- Bitcoin: Up from $1,083.14 to $6,957.99—a ~6.42x increase
- Litecoin: Up from $39.77 to $117.43—a ~2.95x increase
- Ripple: Up from $0.047034 to $0.527721—an ~11.22x increase
- Peercoin: Down from $7.58 to $1.62—a ~78.6% loss
- Namecoin: Down from $9.94 to $1.52—an 84.7% loss
So, if our hypothetical FOMO trader had invested $100 in our top-five sample near the 2013 peak, it would currently be worth $411.80 (the profitable coins) + $3.06 (PPC) + $4.27 (NMC) = $419.13—a 4.19x increase.
Now for the two coins in the middle five that didn’t completely die:
- Yacoin: Down from $0.311704 to $0.001025—a ~99.7% loss (Note: Since a $20 investment would only be worth a little over six cents, I’m calling this a total loss)
- Ixcoin: Down from $0.146275 to 0.111126—a ~24% loss
So, if our hypothetical FOMO trader had invested $100 in our middle-five sample near the 2013 peak, it would currently be worth ~$15.19—an ~84.8% loss.
Finally, here are the two coins from the bottom five that didn’t completely die:
- Elacoin: Down from $10.95 to $0.212289—a ~98% loss (Note: since this is only worth about $0.39, I’m calling this a total loss)
- Argentum: Down from $0.793038 to $0.117466—an ~85.2% loss.
So, excluding everything buy Argentum, if our hypothetical FOMO trader had invested $100 in our bottom-five sample near the 2013 peak, it would currently be worth ~$2.96—a ~97% loss. Putting it all together, $300 invested in this sample of 15 coins as close to the peak of the 2013 market as the data will let me get, would be worth $429.95—a disappointing, but not-unexpected ~30.2% increase over five years. That said, I’m honestly somewhat amazed our FOMO trader made anything at all on this basket of coins, considering how many of them failed. In any case, all of his gains came from the top-three coins from 2013: Bitcoin, Litecoin, and Ripple. Conclusions
What’s the lesson here, what’s the takeaway?***** Most importantly, I think the above analysis shows that it can be very
dangerous to buy alt-coins when the market is at or near an all-time high—a conclusion that appears to be true regardless of where the alt is positioned in the market. That said, there are a few caveats: (1) this sample was intentionally bad, in order to reflect a worst-case scenario; (2) even buying the top-three coins at the all-time high didn’t net our FOMO trader particularly large gains when compared to someone who bought these same coins after the crash. Therefore, I think that the most important lesson here is not to buy high in the first place. Investing solely because of FOMO will probably cause you to lose money, unless you have invested equally in a broad range of cryptocurrencies, like the trader in our hypothetical. Even then, however, our FOMO trader probably would have done better investing in an S&P Index fund over the same period. Endnotes
*This is a correction to my earlier piece, in which I stated that the cryptocurrency market peaked on November 30, 2013, at a total market capitalization of ~$15.2 billion. I made this error due to having failed to narrow the date range of the chart so I could properly zoon in. That said, the exact details of the market peak don’t affect the conclusions from my last piece, which considered trades made after the market had bottomed out.
** …you do not talk about trading. Wait, that’s the wrong rulebook.
*** Since I already typed it out, here’s the list of remaining active coins, in descending order: Bitcoin (BTC), Litecoin (LTC), Ripple (XRP), Peercoin (PPC), Namecoin (NMC), Megacoin (MEC), Feathercoin (FTC), WorldCoin (WDC), Primecoin (XPM), Freicoin (FRC), Novacoin (NVC), Zetacoin (ZET), Infinitecoin (IFC), Terracoin (TRC), Crypto Bullion (CBX), Anoncoin (ANC), Digitalcoin (DGC), GoldCoin (GLD), Yacoin (YAC), Ixcoin (IXC), Fastcoin (FST), BitBar (BTB), Mincoin (MNC), Tagcoin (TAG), FlorinCoin (FLO), I0Coin (I0C), Phoenixcoin (PXC), Argentum (ARG), Elacoin (ELC)
**** I know that we could have sold them sooner, and probably for more money, but let’s just assume that our hypothetical FOMO trader was a founding member of the #hodlgang. ;-)
***** Don’t mess with Maui when he’s on a breakaway! You’re welcome. ;-) Disclosures:
I have previous held Litecoin, and currently hold approximately $140 of Ripple. I do not believe this influenced my analysis in any way. I have never bought or held any of the other coins discussed in this analysis.
Edits: Formatting, typos, minor clarifications.
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