An index is a mathematical expression of the ratio of two objects. The Altcoin Index reflects the size of the capitalization of all cryptocurrencies with any fiat currency. The most popular pair is ALT/USD.
This instrument appeared in 2017 in response to the growing public interest in the cryptocurrency market. Since the Bitcoin pump was in the same period, the Altcoin Index started the movement at 5000 points.
But the subsequent fall collapsed quotes to 1700, after which the situation began to gradually even out. This data shows that the total cryptocurrency capitalization has decreased almost three times.
The main purpose of the instrument is that traders need it to monitor the current state of the cryptocurrency market and predict the trend. But many exchanges have made the Altcoin Index available for trading through options.
The trading process boils down to the fact that the trader needs to predict the movement of quotes. For this, prepayment is made. If the forecast is successful, the difference between the quotation at the time of opening and closing of the option will amount to net profit.
Money for the purchase of an option is not refunded. Therefore, traders should be careful and not get involved in adventurous transactions, the outcome of which is difficult to calculate.
Also, it will be interesting for traders to know that the Altcoin Index is not tied to speculative prices and reflects the real situation on the market. This information is useful for long-term cryptocurrency forecasts.
For example, in January 2019, the Altcoin Index began to move up, which indicated an increase in capitalization, and hence high demand for cryptocurrency. But in the same period, the exchange rate for Bitcoin and other altos did not change much on the exchange.
By May 2019, the index crawled down, and the market responded with an immediate jump in prices for all altcoins. As soon as the artificial pump has exhausted itself, all cryptocurrencies went for a correction.
How to trade
Since the Altcoin Index is a mathematical measure, only numbers affect its value. First of all, we are talking about the cryptocurrency market capitalization. This parameter depends on the demand, which is tied to the news background.
Any criticism leads to the outflow of some investors. At this point, the news about large transactions for the sale of cryptocurrency can appear on the internet. As a result, general panic and a catastrophic drop in the price of all altcoins will begin.
Such a swing is often a planned action of the so-called giants – large investors who own a large percentage of assets. They artificially manipulate the market to extract great profits.
Altcoin Index allows you to track the real movement of funds and understand market conditions. If the index value has changed by a couple of hundred points, this is not a critical deviation and the market is stable, while the ups and downs in it are caused by market giants.
On the other hand, strong growth or fall of the Altcoin Index is a signal that serious changes will occur in the market soon. This information can be used both for trading directly with cryptocurrencies and for earning on options.
In the latter case, it is necessary to carry out a comprehensive fundamental analysis, which will definitely help to understand the mood of the public. A trader needs to distinguish a temporary surge of enthusiasm from a positive trend.
Short-term volatility is dangerous because it is unpredictable. An option may become unprofitable a moment before closing. Therefore, this mechanism is recommended to be used only along the trend line.
Its advantage is that you don’t actually need to have digital assets. Payments are accepted in dollars. You can bet both on the decrease of quotations as well as on their growth.