Bitcoin Dominance Continues Decimating Altcoins

Summary Bitcoin remains in a Bull Market, with On-Chain Metrics showing a moderately bullish sentiment and strong support around $67K-$70K. Altcoins are poised for growth, driven by expanding use cases and a favorable regulatory environment, but liquidity remains a key catalyst. The recent “digestion period” coincided with rising Bitcoin Dominance and falling Altcoin prices. Altcoin pricing behavior can be characterized as long-dated Call Options. Avoid FOMO; dollar-cost-average into Altcoins when indicators and liquidity conditions are favorable. Introduction I’ve written several articles highlighting the twists & turns of Bitcoin’s ( BTC-USD ) journey, to which it eventually broke through $100K. In my last article, entitled Bitcoin: Passing the Baton to Altcoins , I alerted readers to prepare for the upcoming “Altcoin Season” saying we’re probably six months away (meaning May’25). This article updates On-Chain Metrics, discusses my Altcoin Framework, introduces a new concept of Altcoin pricing behavior and concludes with a portfolio strategy. Bitcoin’s still in a Bull Market If we look back to the major Bull cycles of Bitcoin, we can start with the first cycle of 2009–2011 onwards to 2023-2025. We are now in the second year of the Fourth Halving . The Bull market typically develops into a parabolic (and final “blow off” stage). Year to date, Bitcoin’s down ~30% from its ATH, and the shallower decline suggests it’s a Bull market Correction – not a cycle decline. Glassnode On-Chain Metrics (“OCTA”) and Off-Chain Indicators Now that we’ve determined we’re in a Bull cycle, we can utilize OCTA to determine local peaks and bottoms. I utilize a holistic approach to measuring risk including Sentiment and a slew of On-Chain Metrics. They are again showing confluence – meaning indicators from different data-sets and different assets (Bitcoin, Crypto, Equities..) are giving the same reading. Most have changed from Bearish in Nov’24 to moderately Bullish as of Apr’25. Some of the major categories and their readings are below: Sentiment (Bullish readings, both Equity and Crypto) Blockchain Usage (Neutral reading) Investor Profitability (Bullish especially for ST holders) Global Liquidity (Moderately Bullish) Derivative Positioning (Neutral) Exchange Flows (Bullish) Sentiment (“Fear & Greed”: Bullish reading) The chart below is Bitcoin’s price color-coded with the Fear & Greed index and as you can see, the index moved from Extreme Greed (~ 90) at the time of my last article, to Fear (~ 25 ). This suggests that Bitcoin prices are nearing a local bottom – there’s strong support in the chart at $67K-$70K. BGeometrics Blockchain Usage (Active addresses: Neutral reading, Exchange Flows: Bullish) Investors have removed the largest number of Bitcoins (measured Y/Y by Glassnode) in history, meaning investors are “holding” their Bitcoins. Active address growth has been lackluster since March’24, which is somewhat concerning. However, the decline may be attributed to a shift from personal wallets to custodied Bitcoin ETFs. On the other hand, there is expanding demand from governmental (state and central), corporations (private and public) and asset managers (ETFs, Exchanges…). The website Bitcoin-treasuries is a way to monitor this demand over time and their heat map is below. BGeometrics Bitcoin Treasuries Investor Profitability (Neutral to Bullish) Overall, investors have about 75% of their BTC holdings in profit (not a good sign as it could portend selling). However, a drilldown reveals that the LTH (long-term holder) cohort (which is less likely to sell) has most of these gains. Newer Retail Investors (“STH” on the lower chart) are experiencing losses matching previous bear markets. These “weak-hands” are likely witnessing seller exhaustion. Glassnode Glassnode Derivative Positioning (Neutral to slightly Bullish) Data has moved from Extremely Bearish last Nov’24 to Neutral as Futures Open Interest and Funding Rates have come down from peak levels. The options market is more bullish as the Delta Skew is at the high end (~ 0.08) of its 2Y range. This means that investors are worried about a correction, so they’re buying more protection via Put options. BGeometrics Bitcoin Dominance continues BTC Dominance will likely continue until the Federal Reserve pivots or Global Liquidity accelerates. Presently, BTC Dominance is 63% and recent history suggests it’ll peak around 68%. Remember, Bitcoin has its own unique “Digital Gold” narrative and doesn’t have to worry about competing with 25,000 Altcoins! My Framework for Altcoin Season Fundamentally, “things look good” for Altcoins given: The defanging of the SEC Support by the U.S. Congress A pro-crypto Trump Administration Expanding use-cases (e.g., Defi, DePin, Prediction markets, Gaming/NFTs, Authentication) Altcoins as Call Options My framework is that as Bitcoin rises, a wealth-effect is created and investors become overconfident. They then trade on leverage and sell Bitcoin for faster horses. The established narrative is that this occurs a year or two after the Bitcoin Halving; however, my belief is that the strong gains in Altcoins are reflecting the Liquidity Cycle – not the Halving Cycle. This means Altcoins could continue declining both absolutely or in BTC terms until the Liquidity catalyst arrives. Crypto OGs often say that tokens are similar to venture capital portfolio companies with most failing over time. According to a study conducted by Coingecko, over 14,000 crypto projects have failed (as of 2023) and approximately 70% fail during each cycle. Given crypto’s low entry-barriers, a high failure rate is “par for the course.” Call me cynical, but I characterize the movement of Altcoins as equity Call Options . In fact, I would expect the same type of investor to be purchasing both Call options and Altcoins. Both are great ways to get rich quick or lose your shirt. When I studied Risk Management, required reading was on what’s called the Option Greeks . They are Delta, Gamma, Theta, Vega, and Rho. These metrics quantify how an option’s price is affected by various factors, including the underlying asset’s price, time decay, volatility, and interest rates. Altcoins then, are similar to long-dated Call Options that are sensitive to Delta (i.e., change vs. Bitcoin’s price) and they degrade over time (“Theta”). As a sidenote, the Indicators that I’ve shown have historically done a good job at timing major tops & bottoms; however, they are not practical for timing the next Altseason as Altcoins tend to run-up after the indicators have bottomed and when Bitcoin is rising (think of the Delta concept). ProjectFinance Altcoin Dominance A method of measuring price-decline in “crypto terms” is examining a crypto’s token price in BTC terms. Let’s focus on Ethereum ( ETH-USD ) as a proxy for the Altcoin market. Most observers would probably agree that Ethereum’s a Top-10 project with strong fundamentals. Still, the ETH/BTC ratio has declined sharply over time. ETH/BTC declined a whopping 77% between “ The Merge ” (in September 2022) and today, where it sits at 0.0188 . This means ETH’s price is worth less than 2% of Bitcoin’s. That’s a shocking development considering that the 2017 narrative was for an “ETH flippening.” TradingView Liquidity is the “Light at the end of the Tunnel” While demand catalysts should be able to boost the price of Altcoins, the fact is that they haven’t. Until the Federal Reserve pivots, I expect the ETH/BTC ratio to decay towards the 2019 low of 0.0164 . But even then, that low was halted only because the Fed started pumping liquidity into the market. And even this takes time; according to GMI’s Raoul Pal, there’s a 10 week lag between gains in liquidity and gains in crypto prices. (Note that the red line in the chart above shows liquidity as measured by the Fed’s balance sheet, while the last chart shows liquidity in terms of M2 Money Supply.) Dysfunctioning Fixed-Income markets may force a Fed Pivot There’s evidence of dysfunctional markets. For example, the MOVE Index has risen sharply, CCC-rated credit spreads have risen and participants are having difficulties pricing collateral. Some examples include: lack of Junk Bond and Leveraged Loan issuance (lowest on record since 2013) and the postponement of several IPOs such as Circle (the company behind the USDC Stablecoin). Bloomberg LLC Treasuries are acting “weird”, for example, 30Y treasury bond prices are declining along with the US Dollar and Equities. This is a rare event, as Treasuries typically act as a “safe-haven” asset in weak markets . If this continues, the U.S. Treasury and or Fed will have to support markets by injecting liquidity. Portfolio Strategy I believe crypto investors should have a 70/30 strategic allocation to Bitcoin and Altcoins, meaning 70% of your portfolio should be in Bitcoin through the cycle, depending on your “risk appetite.” As Bitcoin reaches the Halving Event, I would advise slowly changing allocation to 50/50. The key factors determining what your Altcoin exposure should be are: Indicators, Bitcoin Dominance peaking, and most importantly, Liquidity. Global Liquidity has improved this year, but it hasn’t reached the tipping point, and a portion of this rise was attributed to US Dollar weakness. I would prefer M2 grow above 8% Y/Y compared to the 6% rate of today. That would be your tipping point 🙂 BGeometrics Conclusion Similar to equity investing, I never recommend FOMO-ing into anything. A measured approach to portfolio allocation should be a prime directive, as well as dollar-cost-averaging into Altcoins when the time is right. Well, that’s my two Satoshis!

Source: Seeking Alpha