Material Decline Bitcoin Dominance Suggests “Alt Season”
Happy Wednesday. Sometimes it’s good to take a few days away from things for a minute. I hope everyone in Canada and the US had a good summer holiday season. Thankfully, Rocky Mountain National Park is close by.
The recent moves by Bitcoin and the failure to fully exhaust cause on moves in either direction (accumulative or distributive) has been confusing to watch as of late, so I decided to take a step back and get a more macro look at the market to get a sense of the bigger picture and refine my investing/trading thesis a bit.
Declining Bitcoin Dominance
Bitcoin Dominance as a percent of Total Market Capitalization has declined from a high of 72.79 percent as of September 5, 2019 to 65.43 percent as of July 5, 2020. Yet since May 7, 2020, Bitcoin Dominance has shed 3.49 percent from 69.82 percent as of May 7, 2020 to 65.43 percent as of July 5, 2020.
The declining Bitcoin Dominance and recent market activity would suggest “Altcoin Season” is currently in play. During the ICO heyday on 2017, Bitcoin Dominance fell from 95.79 percent on January 1, 2017 to a low of 36.62 percent on January 13, 2018 – just over one full year. The current trend suggests “Altcoin Season” started September 2019 and, if the prior trend is any indicator, should peak around September 2020, and Bitcoin Dominance should appreciate.
Declining Total Cryptocurrency Market Capitalization
The Total Market Capitalization for the entirety of the crypto marketplace (as calculated by Tradingview) has steadily declined 42.94 percent from a high of $459.12 Billion as of February 18, 2018, to $261.959 Billion as of July 5, 2020. Yet since April 2020, volume across the marketplace has exploded to new all-time highs.
Within just the past 38 days, total Market Capitalization for the entirety of the crypto marketplace has declined 6.8 percent from a $280.392 Billion on June 1, 2020 to $261.959 Billion as of July 5, 2020 and volume has steadily pulled back from the recent record highs, before Market Capitalization started to revert back to the downward trend line.
Since January 1, 2018, the crypto marketplace had approximately 1,588 Initial Coin Offerings (ICOs) which have either completed or are currently underway according to ICOdata.io and ICOmarks. This is effectively flooding the crypto marketplace with: material quantities of pre-mined tokens from these new ICOs, material quantities of new tokens from ongoing mining activity associated with new blockchain projects, and material quantities of new tokens from ongoing mining activity associated with existing blockchain projects (including Bitcoin).
Logically, one would expect Market Capitalization to increase if the volume spike came from fresh sources of capital entering the cryptocurrency marketplace to purchase utility tokens and digital currencies. More fiat entering the market (materially higher than is exiting), chasing the circulating supply of tokens should translate into Higher perceived value/higher prices, and by extension, higher Market Capitalization values. However, the long-term trend since September 2019 does not reflect this conclusion.
Moreover, the Average Transaction Ratio (14 Day) shows Market Capitalization volatility has declined from $66.762 Billion as of February 18, 2018 to $10.096 Billion as of July 5, 2020, and within the past 35 days, from $16.77 Billion to $10.096 Billion. It seems to suggest market volatility is trending downward at a fairly sharp rate, and average transaction value is dropping as well. The 30 Day Average Estimated Transaction Value in USD (All Time) on Blockchain.com appears to confirm this hypothesis, showing transaction value peaked in 2018 at $3.855 Billion January 7, 2018, and has been compressing as it oscillates between a network high of $1.72 Billion and a network low of $897.85 Million.
Summary/My Trade Plan
The trend with Bitcoin Dominance suggests at a macro level the Market Capitalization is flowing away from Bitcoin into Altcoins at an accelerating rate towards a peak. It appears that “Altcoin Season” peak should hit somewhere in September of the current year, so trading bias should shift towards Altcoins and away from Bitcoin and Ethereum.
The current trend with Total Market Capitalization is something of noteworthy concern. I will be watching this trend quite closely to see if a material break above the trendline occurs, which would suggest inflow of fresh capital in the marketplace, which should cause both price and Market Capitalization increase.
Always remember this is not trading advice.
Outside of that, Happy Trading.
The recent moves by Bitcoin and the failure to fully exhaust cause on moves in either direction (accumulative or distributive) has been confusing to watch as of late, so I decided to take a step back and get a more macro look at the market to get a sense of the bigger picture and refine my investing/trading thesis a bit.
Declining Bitcoin Dominance
Bitcoin Dominance as a percent of Total Market Capitalization has declined from a high of 72.79 percent as of September 5, 2019 to 65.43 percent as of July 5, 2020. Yet since May 7, 2020, Bitcoin Dominance has shed 3.49 percent from 69.82 percent as of May 7, 2020 to 65.43 percent as of July 5, 2020.
The declining Bitcoin Dominance and recent market activity would suggest “Altcoin Season” is currently in play. During the ICO heyday on 2017, Bitcoin Dominance fell from 95.79 percent on January 1, 2017 to a low of 36.62 percent on January 13, 2018 – just over one full year. The current trend suggests “Altcoin Season” started September 2019 and, if the prior trend is any indicator, should peak around September 2020, and Bitcoin Dominance should appreciate.
Declining Total Cryptocurrency Market Capitalization
The Total Market Capitalization for the entirety of the crypto marketplace (as calculated by Tradingview) has steadily declined 42.94 percent from a high of $459.12 Billion as of February 18, 2018, to $261.959 Billion as of July 5, 2020. Yet since April 2020, volume across the marketplace has exploded to new all-time highs.
Within just the past 38 days, total Market Capitalization for the entirety of the crypto marketplace has declined 6.8 percent from a $280.392 Billion on June 1, 2020 to $261.959 Billion as of July 5, 2020 and volume has steadily pulled back from the recent record highs, before Market Capitalization started to revert back to the downward trend line.
Since January 1, 2018, the crypto marketplace had approximately 1,588 Initial Coin Offerings (ICOs) which have either completed or are currently underway according to ICOdata.io and ICOmarks. This is effectively flooding the crypto marketplace with: material quantities of pre-mined tokens from these new ICOs, material quantities of new tokens from ongoing mining activity associated with new blockchain projects, and material quantities of new tokens from ongoing mining activity associated with existing blockchain projects (including Bitcoin).
Logically, one would expect Market Capitalization to increase if the volume spike came from fresh sources of capital entering the cryptocurrency marketplace to purchase utility tokens and digital currencies. More fiat entering the market (materially higher than is exiting), chasing the circulating supply of tokens should translate into Higher perceived value/higher prices, and by extension, higher Market Capitalization values. However, the long-term trend since September 2019 does not reflect this conclusion.
Moreover, the Average Transaction Ratio (14 Day) shows Market Capitalization volatility has declined from $66.762 Billion as of February 18, 2018 to $10.096 Billion as of July 5, 2020, and within the past 35 days, from $16.77 Billion to $10.096 Billion. It seems to suggest market volatility is trending downward at a fairly sharp rate, and average transaction value is dropping as well. The 30 Day Average Estimated Transaction Value in USD (All Time) on Blockchain.com appears to confirm this hypothesis, showing transaction value peaked in 2018 at $3.855 Billion January 7, 2018, and has been compressing as it oscillates between a network high of $1.72 Billion and a network low of $897.85 Million.
Summary/My Trade Plan
The trend with Bitcoin Dominance suggests at a macro level the Market Capitalization is flowing away from Bitcoin into Altcoins at an accelerating rate towards a peak. It appears that “Altcoin Season” peak should hit somewhere in September of the current year, so trading bias should shift towards Altcoins and away from Bitcoin and Ethereum.
The current trend with Total Market Capitalization is something of noteworthy concern. I will be watching this trend quite closely to see if a material break above the trendline occurs, which would suggest inflow of fresh capital in the marketplace, which should cause both price and Market Capitalization increase.
- Declining Market Cap and declining Bitcoin Dominance seem to suggest a bearish bias should exist for Bitcoin over the near term (at a macro level) – possibly through the summer (September 2020).
- Should Market Capitalization materially break above the current trendline, it would suggest a bullish bias towards both Bitcoin and Ethereum, as both are the primary gateways for capital to enter the marketplace.
- Should Market Capitalization continue to decline along or beneath the established trendline, I would anticipate market cap to flee away from Altcoins and consolidate within Bitcoin and Ethereum or flee from the market.
Always remember this is not trading advice.
Outside of that, Happy Trading.
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