The Concept of Price Elasticity in Relation to Crypto

(Photo is mine)

One of the concepts in economics that really stuck with me from college up to present day is the concept of price elasticity. This concept actually refers to behaviors of commodities when prices increase or decrease in relation to demand and competitors as well.

To give a more concrete example would be like say Coca Cola decided to increase their prices on their canned sodas by 10%. Because of the price increase, the usual people who buy Coke in cans find the increase a bit high and that Pepsi in can is cheaper and has not issued a price increase. In effect, Coke's price increase made demand for their product less and more for their competitor. That is an elastic reaction.

Now let's say even with the price increase sales figures remained the same, then that means that the demand for Coke in cans did not diminish at all. When the reaction of the market is this type, then that means you have an inelastic nature of demand, meaning demand is not affected by a little price increase.

Now with regards to crypto trading, I apply this concept to Bitcoin and its relation to other cryptocurrencies. I take note which coins doesn't drop or the first ones to pump too right away when Bitcoin have like a plus/minus $1000 movement, or a plus/minus $2000, or a plus/minus $10,000 and so on.

We know right that when Bitcoin gets dumped, most coins are dumped too. We can see that a downward Bitcoin means the market has an elastic demand for other coins too. Upward, the elastic reaction may come a bit slower but yes we still see an elastic reaction from the market when BTC does indeed have a legitimate bullish movement.

What I actually look at are the ones with the inelastic relationships with BTC. So those coins going against the current are the ones I list down because they're the ones who I think are having legitimate price movements and supports. Legitimate price movement means like investors are buying in because of the strength of the blockchain itself without other factors like BTC price and competitor prices.

Some coins I noticed when BTC fell off from grace (64k level) were Luna, Matic, Atom, Sandbox, Shiba, GTC and SCRT, well at least to my recollection. Although eventually these coins succumbed to sell-offs too but not as much and immediate as most coins did.

Hive I think also have an inelastic relationship to BTC but I guess the timing of the recent climb to $3 and the BTC sell-off was too coincidental that Hive bulls were not able to establish a concrete support at those levels. Probably if it took a bit longer before BTC and the market crashed then Hive would probably have cemented a support on the $2 area by now. My guess is Hive will be back up soon to at least $2 if Bitcoin can climb back up above $50k.

You can also apply price elasticity concepts on a per coin basis if we're not on a bear market. Just look at which competitor networks are dumped when its competitor coins are going up or which coins are going up too when a certain coin is being pumped up.

The thing to remember really about applying price elasticity concept is how related commodities react. When you see Atom goes up, like in a day or two you'll see Polkadot goes up too or vice versa, (unless some bad news came out, of course, not always this will happen) so things like that.

Yes, it's a bit tricky but if you are observing the price movements then it will come naturally.

The price elasticity concept has worked well for me because I was able to park some of my coins to those inelastic ones I've mentioned. So for example when BTC was going down I knew it was going to drag a lot of coins but there are always some coins that doesn't join the tide. I had like some Atom bought at $40 before the bears got crazy. It went down to $21 briefly and then went back up to $40. I actually sold at $35 before going $40, So I was just down by 8%, and at that point most coins were more than 50% down.

I then transferred my Atom holdings to Gala when it was at 18 cents to 20 cents, so kind of enjoying a bit of profit now at above 30 cents level.

I hope you liked this new approach to crypto trading. It's really useful on a bear market. If you haven't read my Bottom Fishing article, you can look it up and I think the things I mentioned there would go in tandem too with the price elasticity approach.

Thank you for reading. I hope you learned something. Happy trading! ❤️

Posted Using LeoFinance ^Beta