I’ve heard a lot lately about a potential alts season: many of you are wondering if, after the pretty bullish rally of Bitcoin, it wouldn’t be up to the altcoins to perform. Many hope so.
But an even more fundamental question arises: is it possible to establish a correlation between BTC dominance and altcoins performance? Obviously, yes. Traders and graphs showing these correlations are legion on the internet.
But if we continue our reasoning, would it be possible in this case to define intervention timings favouring altcoins, or favouring Bitcoin?
Probably, and that’s when things get… interesting.
As usual, I will use technical analysis in this article. The graph that interests me today is the one representing the dominance of BTC over altcoins in percentage (calculated by TradingView). Let’s study the different swings that the market has made (we will rather talk here about the dominance curve) through some graphs.
Nb: I used ETH as a comparator for altcoins. Although all the altcoins performed differently, I chose Ethereum for obvious reasons of space on the graphs. Most crypto-actives have a high correlation with ETH, which is, therefore, a good alt market indicator (but this will be the subject of a future article).
Let’s get started with weekly charts.
Chart n°1: the dominance of BTC falls, graphically marking a double top.
Result: over 5 weeks, BTC fell by 11% when ETH appreciated by more than 200%.
Chart n°2: BTC’s dominance is recovering.
The result: over 11 weeks, BTC drops by only 49% when ETH drops more than 70%.
Chart n°3: BTC’s dominance falls again.
Result: over 5 weeks, BTC takes 43% when ETH appreciates by more than 100% in a straight line.
Chart n°4: BTC’s dominance increases again over a long period of time.
As a result, over 14 months, BTC succeeded in gaining 17% on a difficult end of the crash and a very dynamic recovery, while our dear ETH lost 61%.
All this is all well and good, but telling history is the prerogative of historians. And I’m a trader. So the question is simple from my point of view: how can I benefit from it in the future?
I think that once again, the answer comes from technical analysis.
Indeed, if we look at the famous graph of BTC dominance in term of percentage compared to altcoins but on a daily basis this time, we realize that it is quite possible to do technical analysis and define interesting areas. Obviously, it will be necessary to take spaced time units and I strongly doubt the relevance of going below the daily time-frame for this exercise.
But on a daily basis, the graph gives logical technical levels according to me:
Graph of the dominance of Bitcoin in Daily and in percentage: it is quite possible to make TA on it. Supports & resistances, technical indicators, oscillators, volume, volatility… everything is good to define areas on which the curve will have a good chance to turn around in order to best arbitrate its crypto portfolio.
Thus, we would have:
1: resistance + divergence momentum
2: phase 4 Bollinger bands indicating a stabilization of the prices
3: old support becomes resistance
4: squeeze on the bands
5: resistance + divergence momentum
However, each of these timings was interesting because it indicated that Bitcoin / Altcoins performances would vary greatly, and it was possible to modify the composition of its crypto portfolio on signals in these areas (while, obviously, we never know in advance if a level will react or not).
It would therefore be possible, in theory, to define technical zones to intervene in the market and manage your portfolio by arbitrating it from time to time: in other words, to manage your market exposure by increasing your portfolio’s exposure to Bitcoin when we have a good chance of increasing the dominance, or by reducing your exposure to Bitcoin while increasing it on alts when we have technical indications that this curve representing percentages will fall.
I take this opportunity, by the way (although it is not the purpose of this article) to point out that we are under resistance in daily… and you have understood which horses to place your bets on when the dominance of Bitcoin decreases through this article!