Rising Dominance May Signal A Bitcoin Parabola
Updated
I posted an analysis a few weeks ago explaining why I thought we were unlikely to see a sustained rally for Bitcoin unless Bitcoin dominance increases. Today, we're seeing Bitcoin break above 50k while alts largely underperform. Bitcoin dominance is slowly curving up, as can be seen in the righthand chart. Most retail traders who have entered the market this year have yet to experience what happens when Bitcoin goes on a parabolic run. From October, 2020 to January, 2021, Bitcoin increased roughly 4x, from 10k to 40k. During that time, Bitcoin dominance rose from 57% to 73%.
What happens next? I think if Bitcoin makes a final parabolic move, alts are likely to underperform for a time. There's room for dominance to head back towards 50% and still remain in a downtrend. This is a very speculative chart, showing zones where I think we could see Bitcoin parabolic price action (green) along with declining dominance. The red zones show where I think Bitcoin distribution can begin, and alts can go parabolic for a time. This would (in theory) result in a new all-time low for Bitcoin dominance by the cycle peak. That's IF we follow roughly what happened in the last cycle.
Alternatively, we can see Bitcoin and alts move up strongly together, with declining dominance. I think this scenario would be less-likely to produce a sustainable run, and I think this would signal that we are near a blow-off top.
So far, the market structure doesn't seem to support the immediate bearish possibility (especially when looking at the TOTAL and TOTAL2 indexes), but you never know. I do have reason to believe this rally could become sustainable, mostly because the derivatives market remains biased to the downside while spot leads the buy side. This is evidenced by the negative premium on Binance futures.
However, on the bearish side, dominance can also increase if Bitcoin breaks down and heads to new lows from here. In this case, I would expect dominance to increase well beyond 50% as altcoin holders capitulate and the hype completely evaporates. I do think something like this will happen eventually (I mean, look at Shiba Inu, NFT's, ADA, etc.)
I think we could see some really wild moves in markets. Based on my observations and my psychosocial analysis, I still think it's very possible we're near a generational top where we can see, at minimum, a 50% decline in legacy markets. With that, I also expect some very large shifts to occur in the next couple of decades - socially, economically, and politically. I've been writing about this possibility since well before the pandemic. I'm excited to see what the future holds.
This is not financial advice. This is meant for speculation and entertainment only. Analyzing the crypto market is a lot more like science fiction than anything else.
-Victor Cobra
What happens next? I think if Bitcoin makes a final parabolic move, alts are likely to underperform for a time. There's room for dominance to head back towards 50% and still remain in a downtrend. This is a very speculative chart, showing zones where I think we could see Bitcoin parabolic price action (green) along with declining dominance. The red zones show where I think Bitcoin distribution can begin, and alts can go parabolic for a time. This would (in theory) result in a new all-time low for Bitcoin dominance by the cycle peak. That's IF we follow roughly what happened in the last cycle.
Alternatively, we can see Bitcoin and alts move up strongly together, with declining dominance. I think this scenario would be less-likely to produce a sustainable run, and I think this would signal that we are near a blow-off top.
So far, the market structure doesn't seem to support the immediate bearish possibility (especially when looking at the TOTAL and TOTAL2 indexes), but you never know. I do have reason to believe this rally could become sustainable, mostly because the derivatives market remains biased to the downside while spot leads the buy side. This is evidenced by the negative premium on Binance futures.
However, on the bearish side, dominance can also increase if Bitcoin breaks down and heads to new lows from here. In this case, I would expect dominance to increase well beyond 50% as altcoin holders capitulate and the hype completely evaporates. I do think something like this will happen eventually (I mean, look at Shiba Inu, NFT's, ADA, etc.)
I think we could see some really wild moves in markets. Based on my observations and my psychosocial analysis, I still think it's very possible we're near a generational top where we can see, at minimum, a 50% decline in legacy markets. With that, I also expect some very large shifts to occur in the next couple of decades - socially, economically, and politically. I've been writing about this possibility since well before the pandemic. I'm excited to see what the future holds.
This is not financial advice. This is meant for speculation and entertainment only. Analyzing the crypto market is a lot more like science fiction than anything else.
-Victor Cobra
Note
And just like that, Bitcoin is back to the distribution range from earlier this year. Could see some volatility ahead. Bitcoin is also sucking dominance from the rest of the market, which tells me that traders are trying to get in on BTC before it takes off to a new high. Alts like SOL are declining heavily on their ratios as well, which I think is a good sign. Bitcoin has essentially been going sideways since the end of Q1, with many alts continuing to make new highs.Note
First major resistance for Dominance at the 200 day MA. Alts can begin to run soon (seeing some signs of capitulation on the alt/btc pairs finally), but there can still be some more upside for dominance towards the 51% level. Note
If Bitcoin can hold/consolidate above this curved formation, I think we can see near all-time high prices soon. Note
And voila.
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