As the cryptocurrency benchmark, Bitcoin (CCC:BTC-USD) suffers one of its worst single-day losses in history — hemorrhaging 17% over a 24-hour period at time of writing — the extreme volatility presents a pressured choice for altcoin investors. Should they buy the discount in digital assets like Cardano (CCC:ADA-USD) or is this a sign of more worrying red ink to come?
While altcoins tend to have a riskier profile than Bitcoin, Cardano is holding its own, at least on a comparative basis. Over the trailing day, ADA is down about 18%. That’s not too devastatingly awful, considering that other altcoins have dropped more than 28% during the same period. Still, if you’re heavily vested in cryptos, this is a rough juncture.
Sure, the social media stream basically has the same message: ignore the noise. Cryptos are incredibly volatile but they’re volatile in both directions. Therefore, if you buy the dip — as many ardent advocates are recommending — you might do well over the long run. When you look at the history of Bitcoin, this narrative appears to have a ring of truth to it.
Throughout BTC’s market lifetime — I’m going back to July 2010 thanks to data from Investing.com — there has been a total of 1,720 days settling in the red on a day-to-day basis as of Dec. 4, 2021. Turns out, 97 of those down sessions resulted in double-digit losses.
On the flipside, there have been 2,011 days in the black. Thus, positive days outnumber negative ones by nearly 17%. Further, out of all positive sessions, 132 of them delivered double-digit profitability (or greater).
Since Cardano generally appears to trade alongside BTC, the framework is a simple one. Keep the faith because ADA will rise again.
Avoid Fatal Math Errors with Cardano and Altcoins
Peruse YouTube and social media platforms and you’ll invariably come across some math-infused analytics protocol claiming to accurately forecast the price trajectory of Cardano (or insert crypto here). I will posit that a great many of these folks, if not a majority don’t understand what they’re talking about.
Using “maths” to advertise a trading system is nothing new. Back in my calculus class-taking days, I recalled how the professor extrapolated future revenue forecasts for a certain publicly traded company based on the firm’s prior revenue trend. It sounded reasonable — and was reasonable for passing the class. But this type of logic featured a fatal flaw in the real world.
Namely, markets and industries that cater to a narrow audience are notoriously difficult to predict because of the higher-than-normal magnitude of outside variables. For instance, consumer tastes can change — how are you going to extrapolate that possibility using calculus?
With Cardano, the worrisome aspect is that the crypto benchmark Bitcoin is slowly but surely losing its upward bias. Between 2014 through Dec. 4 (as opposed to starting from 2010), 49 sessions out of 1,360 down sessions resulted in double-digit losses. During the same period, 55 sessions out of 1,524 up sessions resulted in gains greater than 10%.
Run the quick math on that. Among daily losses from 2014, 3.6% resulted in double-digit losses. Among daily gains from 2014, 3.6% resulted in double-digit (or greater) gains. It’s almost a perfectly even split of trading sentiment.
This dynamic contrasts sharply when you consider the period from 2010 to the time of writing. Among gains and among losses, double-digit swings favored the bulls 6.6% to 5.6%.
The Takeaway for Cardano
So the biggest takeaway here is that as Bitcoin matures, its frequency of massive gains or losses in a single day has diminished. But among those big days, the bears have evened the playing field.
Mathematically, if we’re being intellectually honest about extrapolation models, then we must factor in the maturity of the crypto market. When we do so, we’re finding that — based on what the data is telling us right now — Bitcoin is starting to favor the bears. Or at least the bears have gained momentum.
Over the next several years, could the bulls regain control? Absolutely! However, if you’re planning on buying the dips in Cardano, I think you need to run the real math on the crypto sector. If BTC is turning bearish, over time, we should expect a similar risk profile to affect ADA.
On the date of publication, Josh Enomoto held a LONG position in BTC and ADA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.