This article ‘Trading Basics: Understanding Cryptocurrency Pairs’ will help the reader understand the unique way of valuing altcoins in the major exchanges.
If you’re new to trading altcoins in the crypto space, you might come across an interesting phenomenon: people pricing their altcoins in BTC instead of USD.
Instead of saying a coin like Litecoin (LTC) is worth US$122.91, people may say that it is worth 0.0163 BTC. And this is for a higher priced coin.
For lower valued coins like NXT (NXT), you might hear people saying the coin is worth 1589 sats, instead of saying they are US$0.12.
Here are some examples of tweets mentioning ‘Sats’ from the Twittersphere:
It will probably bottom between 600 to 800 sat, consolidate, then watch out. NXT did it, ARDR did it, IGNIS will probably do it too.
— Bitcoin Dood (@BitcoinDood) March 15, 2018
Grabbed more $zil at 612 sats. sniped.
— EthereumCollector™ (@Moarether) March 29, 2018
If you’re new to this space, you might be confused. I was, too, when I first started.
First, let’s understand what the pairing means.
To understand cryptocurrency pairs, it is akin to understanding the forex market. In the forex market, every currency’s value is moving relative to one another.
You can’t say, for example, that Singapore dollar is going stronger. That would not be accurate. It would be more accurate to say that the Singapore dollar is becoming stronger relative to the US dollar.
Every currency’s value, therefore, cannot be ascertained except by basing it on the value of another currency or asset.
Here’s an example.
When you say USD/SGD = 1.311, it means to say that $1.311 Singapore Dollars can buy $1 US dollar.
So the USDSGD chart is basically US dollars priced in Singapore Dollars.
When the chart is going up, it means the USD is appreciating against the SGD. It will take more Singapore Dollars to buy 1 US Dollar.
When the chart goes down, the USD is depreciating against the SGD. It will take less Singapore Dollars to buy 1 US Dollar.
In the case of the chart, the USD has been depreciating against the SGD over the past one year.
It works the same in the cryptocurrency markets.
When it comes to Cryptocurrencies, you will notice that most altcoins have two pairings.
In the case of Litecoin(LTC), you will see both:
- LTC / USD – This is Litecoin priced in US dollar
- LTC / BTC – This is Litecoin priced in Bitcoin
These two are the most common pairings and you will see them across all platforms
In some exchange platforms like Binance, you will also see a third and fourth pairing,
- LTC / ETH – This is Litecoin priced in Ether
- LTC / BNB – This is Litecoin priced in Binance Coin
Basically, the number that you derive from A / B is basically the number of asset Bs it takes to buy asset A.
- So LTC / USD at 111.98 means it takes USD111.978 to buy one Litecoin.
- LTC / BTC ‘s value is at 0.016, which means it takes 0.016 Bitcoin to buy one Litecoin.
In the cryptocurrency space, many people judge a coin’s value relative to Bitcoin’s value, so they use the /BTC pairing more than the /USD pairing. This may be confusing for people new to the cryptocurrency space.
Satoshis as a Unit of Bitcoin
Since most altcoins have a BTC pairing, they may be looking at many decimal places.
A coin like NXT which may be US$0.11, has the value of 0.00001600 BTC.
A coin like UBQ which is about US$1.33 at the time of writing has the value of 0.00019757 BTC.
However, because it is a hassle to write so many zeros every time, the community has come with another way to value an altcoin, especially those of low valuation.
The smallest unit of Bitcoin, 0.00000001 is also known as 1 Satoshi. So, an altcoin like NXT with a value of 0.00001600 BTC will be called 1600 satoshis, or 1600 sats. UBQ will be said to be valued at 19.7K sats.
So when the word ‘sats’ is mentioned, it is implied that the coin is priced in BTC.
However, for some higher value coins like Litecoin (LTC), it doesn’t make sense to say 1600000 sats. Once again, too many zeros lead to confusion. Missing one zero can be 10x difference in valuation!
Although it is technically not wrong, the community prefers to value at LTC in terms of the whole Bitcoin, i.e. 0.016 BTC.
Why price it in BTC and not dollars?
Even though this is confusing to someone new to the space, but there is a strong fundamental reason why people price their altcoins relative to Bitcoin. The simple reason is: Bitcoin is King and the standard in the cryptocurrency world.
It is like the gold of the digital space, and therefore the goal of trading altcoins ultimately is to earn more Bitcoin.
For example, if you own LTC and it goes up by 50%, whereas Bitcoin goes up by 100% at the same time. You may have gained in USD terms, but you would lose in Bitcoin terms!
This means you would have been better off holding Bitcoin, the ‘gold’ of the digital space.
Experienced traders don’t think of pricing their coins in USD; instead, they price it in BTC. Their goal is to, say double or even triple their Bitcoins, or more!
At the end of the day, many of these experienced traders believe strongly in the fundamental case of the global adoption of Bitcoin, and hence know that the more Bitcoin they own, the richer they’ll become if Bitcoin becomes a one world currency (or store of value)
What do you think? Does it make more sense to price your altcoins in US dollar? Or does it make more sense to price it in Bitcoin?
Leave your thoughts in the comments below!
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