Bitcoin may regain dominance over altcoins
Breaking from the decades-long tradition of Bitcoin dominance, Ethereum has outperformed the market in recent months. While some saw this as the market pricing in the coming merger, others argued that it showed the natural and expected decoupling of the market.
Ethereum’s better performance was clearly visible through the altcoin cycle signal, a metric that determines the strength of the altcoin market. Varying between 0 and 100, the altcoin cycle signal marks Bitcoin Season and Altcoin Season.
During the Bitcoin season, when the signal drops below 50, BTC is likely to outperform the entire altcoin market. During the Altcoin season – when the signal rises above 50 – this dynamic is inverted and the curve of altcoins led by Ethereum becomes the dominant force in the market.
The Altcoin cycle signal is based on the price data of the top 250 altcoins by market capitalization and excludes stablecoins. A reading of 0 or close to 0 shows that the market is in Bitcoin season and BTC is expected to outperform all altcoins. A reading of 100 or close to 100 shows a decidedly Altcoin season, where a fall in Bitcoin dominance is expected. The top 250 altcoins are expected to outperform BTC.
When the altcoin cycle signal fluctuates between 20 and 50 or 50 and 80, the market is characterized by uncertainty. Although a score below 50 indicates Bitcoin season and vice versa, fluctuating readings show significant potential for a trend reversal.
The Altcoin cycle signal, which currently stands at 79, shows that the market is currently knee-deep in Altcoin season. However, the signal has dropped significantly in the last two months – through July and August – and was at 100 during the first two weeks of September.
Falling below 80 was usually followed by a rapid drop below 50 and the beginning of Bitcoin dominance. In the past year, the signal never took longer than a few days to swing below 80 before.
However, it is still too early to say whether this is the beginning of a new trend reversal.
Returns posted by major-cap cryptocurrencies show that money has been steadily flowing out of Layer-1 tokens. Large-cap tokens have significantly underperformed BTC, a trend that correlates with the current altcoin cycle signal.
This means that the market can remain in the Altcoin season. It is also too early to say how the upcoming merger will affect altcoin dominance. Ethereum has probably led the altcoin outperformance – if ETH sees its price increase after the merger, the market could see several weeks of Altcoin season.
However, if ETH sees its price drop following the transition to a PoS network, the declining altcoin cycle signal could fall even further and push the market back into Bitcoin season.
