As a crypto trader, it’s so important to select the right base currency for your portfolio. If you don’t choose one at all, it will be impossible to track your profits and losses – which will only lead to more losses.
Picking the wrong base currency can be just as damaging to your portfolio…
Today, we’ll cover how to choose the best crypto base currency by using BTC and USDT, arguably two of the most popular base currencies, as our comparative example.
But before we jump into that, let’s clarify…
What is a base currency?
In the world of crypto trading; a base currency is the cryptocurrency you use for quoting all other cryptocurrencies against.
It’s always the first currency appearing in a coin pair, which in the example below is BTC:
What’s the difference between choosing BTC over USDT?
Many traders, even those with a fair level of experience, are still unsure about what to use as their base currency.
To help you understand the right thought process that goes along with selecting a base currency, I’ll share an explanation from Matthew Tansley, Founder of ProfitFarmers – a Binance.com-integrated signal copy-trading platform that offers BTC and USDT linked coin pairings.
Keep in mind that the following explanation was provided to members on the ProfitFarmers platform. While it may not be specific to you, it provides incredibly valuable insight on the importance of choosing the right base currency!
“Finding yourself confused about what to trade? There are two choices with our [ProfitFarmers] signals, Bitcoin or USDT linked pairs.
So what’s the main difference between the two?
It’s simply the ‘base currency’ of your account. If you keep all of your money in Bitcoin and trade only on Bitcoin pairs, then technically you will earn more Bitcoin when you win on BTC-linked pairs.
On that note, up until very recently, many traders were keeping 70-80% of their portfolio in Bitcoin and here’s why:
When Bitcoin is in an uptrend against USD, you would make more money even without trading just by holding Bitcoin. Recently, Bitcoin has been in a particularly strong uptrend making buying it on dips very interesting (although always nerve racking!).
By doing this, we would own Bitcoin as a base currency. So whether we trade regularly or not, we could benefit from Bitcoin’s uptrend just by holding it.
What’s the main idea behind this strategy?
So, the idea here is to convert your portfolio into Bitcoins, and then trade those Bitcoins to gain even more Bitcoins.
You can think of it like this: You currently have USD or EURO or whatever your local currency may be, and you’re trading that currency to make more currency.
The only difference here is that we are treating Bitcoin itself as a major currency. So instead of counting our gains in our original currency, we are now counting our gains in Bitcoin.
On the other hand, most USD coin pairs are directly linked with Bitcoin’s moves. If Bitcoin drops, you may likely see significant drops in USD linked pairs too. This means you lose USDT value with no way to recover it passively.
While you may lose notionally if Bitcoin drops for a while, it will eventually resume its trend on the up-side, meaning you don’t lose in the literal sense.
Timing is everything due to Bitcoin’s volatility
Bitcoin will have its ups and downs but the larger trend is still pointing towards new highs over time.
If you have technical analysis skills you can move your holdings between BTC and USDT depending on whether Bitcoin is trending up, consolidating sideways, or threatening to drop.
For example, $40,000 was widely expected to give the recent run pause for thought. A perfect time to consider keeping holdings in USDT until the up trend resumes and is confirmed.
Why else would I use Bitcoin pairs?
Aside from trying to accumulate as much Bitcoin as possible, Bitcoin paired trades give you the chance to benefit from the falling value of Bitcoin relative to other coins. This means you can find good opportunities even when Bitcoin is stuck in complex sideways price action or going through a pull back.
My key takeaway for you guys:
If you are a Bitcoin believer (long term) then consider buying Bitcoin on all major dips. And try to trade those Bitcoins to make more Bitcoins by playing the altcoin markets. The idea would be to do this for as long as Bitcoin keeps its up trend intact. Recently the trend has been brought under fire so cautious traders can wait for a clearer picture (likely presented if $40,000 is reclaimed).
Review the market regularly to decide when to move back to USDT as a base currency once Bitcoin’s uptrend is stalled. Then consider trading USDT pairs when you are more confident of the uptrend to get faster gains than just by holding Bitcoin.”
Whew! That’s a lot of great advice to take in, and I hope it provides you with clarity on how to choose the right base currency for your trades.
My key takeaway from reading that? Decide on a base currency that’s in an up-trend against your local currency, one that will make you money just by holding it over the long run.
As always, please remember your money = your responsibility!
Want to get more great tips and market insights like this? Then head over to ProfitFarmers’ website where you can subscribe to their newsletter to get updates like these absolutely free!