Beware of Investing in BitTorrent Only After It Has a Big Run-Up

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In the past six months, BitTorrent (CCC:BTT-USD) has been through a rough period. The BTT crypto has drifted lower from a peak of 0.3835 cents as of June 1, 2021. As of Jan. 5, 2022, it was at 0.2973 cents per BTT crypto token.

A BitTorrent (BTT) crypto token on a purple fabric background.

Source: Stanslavs / Shutterstock.com

So, over the past 6 months, its has tumbled 22.5%. That is not good, especially since other major cryptocurrencies have had very positive returns for the year and in the past 6 months.

For example, Ethereum (CCC:ETH-USD) was at $2,706.12 on June 1, 2021. But, as of January 5, 2022, it’s still trading higher even though lately the ETH crypto has been falling. For example, it was at $3,718.46 yesterday, which represents a 6-month return of 37.4%.

Size Doesn’t Matter

And this is for a much larger cryptocurrency. For example, Ethereum trades at a market value of $442 billion, according to Coinmarketcap.com. But BTT Torrent has a market capitalization of $2.94 billion, or basically less than 1% of the market value of Ethereum.

So, if you think that just because BTT Torrent has more potential upside since it is smaller, think again. These numbers show you that market cap size is really not important in terms of determining potential performance.

Now, granted, BTT crypto is now about 9 times the price that it was a year ago. By contrast, Ethereum is only about 3 times the price it was a year ago. So that might seem to contradict what I just said about the value of the market cap.

But, the truth is that most investors in BTT Torrent got into the crypto after it had moved up. By contrast, many more investors in Ethereum held this crypto for the whole year. Therefore, from a practical standpoint, it is highly likely that as a percentage more investors in Ethereum made money than the total number of investors in BTT crypto.

Bounded Rationality and Other Biases

By the way, this relates to several commonly known biases that are typical in stock market investing. For one the theory of “bounded rationality” shows that people will tend to invest based on limited information. Investors in BTT crypto may not have known much about BTT but when they saw it rising they jumped in.

This also relates to two other known investing biases: trend-chasing and confirmation bias. You can probably figure out what these mean, but, suffice it to say, that chasing a crypto after it’s moved up is the main catalyst to these two biases.

Oh, and just in case you think I am pontificating here, I readily admit that I fell into these traps last year. I, too, bought BTT Torrent after it had run-up.

To my chagrin, once I realized this, I later decided to sell my position at a loss. I also realized that I could be stuck in this crypto for a good while. In the meantime, other larger cryptos and even smaller ones were outperforming. So I took my losses and moved on.

What to Do With BTT Crypto

There are obviously good reasons why you might buy BTT crypto, as I have pointed out in earlier articles. For example, in one article, when I first bought into BTT Torrent, I discussed the history of this crypto. However, as I also pointed out, there have not been a lot of recent developments with BTT crypto.

But right now my own experience has soured me on the crypto. I have learned a valuable lesson about market cap size with cryptocurrencies from it.

My recommendation here is that investors should be very careful with this crypto. Make sure to invest in it only if there is an obvious long-term catalyst that could significantly push it higher. Right now I do not see anything like this on the horizon for BTT crypto.

On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Mark Hake writes about personal finance on mrhake.medium.com and Newsbreak.com runs the Total Yield Value Guide which you can review here.

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