It’s been a long day of convincing my cryptotrading colleagues that the sky isn’t falling and that the Bitcoin has gone down in value before and most probably will bounce back to reach new heights. But one thing that became very clear that a lot of them aren’t used to thinking in crypto.
Let me start with an example. I live in Europe and our currency is the euro of course (just in case you didn’t know). On the other side of the ocean we have the United States who use the Dollar. Now the euro is worth more than the dollar but for the sake of my story let’s say that these currency are worth the same.
Now say that I am going on holiday to the U.S. and I want to buy a Sony Playstation while I am over there. Now this will set me back around $400 (of course I am going for the pro version but that’s beside the point).
When I exchange my €400 euro I will get $400 (again for the sake of my story I have banned transaction fees and other hidden costs).
Now let’s say that the euro becomes more valuable while I am vacationing in the U.S., the euro suddenly doubles in value compared to the dollar. So now when I exchange my euros I will get more dollars, right? For every euro I will receive 2 dollars (are you with me so far?).
The result of this increase of value of the euro is that I only have to exchange €200 to get $400 (nice!).
In short the Sony Playstation now will only cost me €200 instead of €400.
Older Europeans are quite used to this because in the olden days before the euro this kind of math was quite normal. People would go to neighboring countries to buy goods if the exchange of currency was in their favor.
The thing is that the Playstation still has the same price tag, the price hasn’t gone down but yet I payed less. Now if we turn the scenario around the opposite will happen. If the euro's value drops in half it would mean that I have to exchange €800 to get $400 so the Playstation will cost much more, and again the price of the Playstation has remained the same.
Now back to Cryptocurrency. Let’s replace the dollar with the Bitcoin and the euro with...well any altcoin actually. The value of the Bitcoin has gone down 50% since its recent surge and a lot of people are panic selling because they see the dollar value of their altcoins going down with it.
But what they are forgetting is that the dollar value is going down as extreme as it is because the Bitcoin’s value is going down. What they need to do is compare the value of the altcoin against the Bitcoin (satoshi) instead of the dollar.
Again an example. Let’s say you own Steem (Yeah, let’s pretend), you buy Steem with Bitcoin and if you exchange it..you get Bitcoin, right? Now if you want to cash out, you sell that Bitcoin for dollars (or euros... or whatever currency you prefer). Let’s say you own 16,000 Steem and decided to sell it (because of the fact that the Bitcoin is hitting that $16,000 mark) and you get 1 Bitcoin (the price compared to the bitcoin is 0.00006250 BTC or 6,250 satoshi in this example).
Now fast forward to present day when the Bitcoin is worth $8,000 (price is slashed in half), if you would sell your Steem now you will get the same amount of BTC (namely 1). You see the price of Steem compared to BTC has not changed, 16,000 Steem is still worth 1 Bitcoin.
However in your Blockfolio app or price chart online you will see something different, that same amount of Steem that was worth $16,000 in the old situation (when BTC was worth $16,000) is now "only" worth $8,000.
But the actual value of Steem has remained the same.
Yes, the price of altcoins is going down at the moment but be sure to compare the price of the altcoins against BTC (if that is the coin that you bought it with). You will see a different (the actual) picture. Remember you only lose money when you sell at a loss, don't panic sell, keep calm and wait for the coins to bounce back.
