3 months ago • 2:36 mins
Early last year, you could’ve thrown a dart at a list of altcoins to make your picks, and you’d still have seen some double in value within the week. But this so-called “altseason” is gone for now, with most digital assets currently crashing in value versus bitcoin. So let’s take a closer look at where the real opportunity is in the meantime…
The chart below shows bitcoin’s market size as a percentage of the broader crypto market – a.k.a. bitcoin dominance (BTC.D on TradingView). When the ratio is trending down, that means altcoins (i.e. crypto investments other than bitcoin) are mostly going up in value versus bitcoin. That’s an altseason. During these periods, you’d have made a lot more money holding a spread of smaller-sized cryptos than bitcoin alone.
But when bitcoin dominance is going up, it works the other way around: the king takes the reins and the altcoins bow down – so in those periods, you’d have been way better off just owning bitcoin. That's bitcoin season.
Of course, that doesn’t mean you would have always made profits in US dollars. Bitcoin could be falling versus the dollar – like it has been lately – while altcoins fall even harder.
The table below lays out the different relationships between bitcoin dominance and bitcoin’s price, and the impact those two have on altcoin prices.
Bitcoin dominance fell sharply during the recent crypto bull market: from a high of about 74% in December 2020 to a low of 39% in January this year. Right now, it’s sitting at around 46% and is in a new uptrend – hitting higher highs and higher lows. The chart below shows what’s going on here, with each bar representing one week’s worth of movement in the metric.
While bitcoin dominance may pull back every now and then in the short-term (as altcoins briefly bounce against bitcoin), it certainly looks like it’s already put in a long-term low. In other words, bitcoin season is upon us, so you might be waiting a while for altcoins to steal the show.
For one thing, inflation is up, so the Federal Reserve (The Fed) and other central banks are raising interest rates and tightening their balance sheets to try to cool those price hikes. And although bitcoin hasn’t worked so well as an inflation hedge of late, it’s still perceived as the best inflation hedge in crypto. There’s also a lot less free cash sloshing around to inflate the higher-risk altcoin market.
For another, institutional investors are a lot more comfortable with bitcoin than they are with smaller-cap altcoins. Bitcoin has been battle-tested the longest, is usually less volatile, and has a much larger market size than the rest. And we’ve seen this recently with on-chain data, where the largest crypto whales (likely institutions) have been buying bitcoin’s dip.
The crypto market also tends to follow a natural cycle. When it’s in a bear market – like right now – bitcoin soaks up a lot of the altcoins as investors favor bitcoin’s relative price stability.
Then at the start of crypto bull markets, investors tend to field their most experienced player first (i.e. bitcoin). Next off the bench come the larger, “layer 1” protocols like Ethereum, Solana, and Polkadot. And finally they’ll give playing time to the more speculative, smaller-sized projects with more upside potential. That’s because generally once investors have profited from the perceived “safer” investments, they’re inclined to take more risks.
Think back to the end of 2020, for example, when bitcoin ran from $10,000 to $40,000. Most altcoins lagged behind – even though they were still gaining value against the dollar. Then in the first quarter of 2021, bitcoin went from $40,000 to over $60,000 while altcoins multiplied and multiplied.
If past cycles are anything to go by, there could be an easy way to play this. When the bull market eventually comes roaring back, it's likely bitcoin will lead the charge at first, so it might be worth accumulating more bitcoin than altcoins now at these lower levels. It’s also the safer play while we're still in this bear market, as altcoins could fall a lot more than bitcoin while it tries to find a low.
So holding bitcoin is not only less risky right now than altcoins, but it also might generate more upside in the first leg of the next bull run. Then later in the game – when bitcoin dominance is much stronger – it might be worth switching more of that bitcoin into altcoins.
True crypto fortunes are made in bear markets – not bull markets – by gradually buying into projects with great fundamentals when they’re cheap. But the bitcoin dominance chart suggests most (but not all) altcoins could still get a lot cheaper relative to bitcoin in the coming months. So on the bright side, there may still be plenty of time to double down into your favorite higher-risk plays.
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