Altcoin Market Update - September 7, 2021
Don't just stand there, bust a myth
The total crypto market dropped 11% since I recorded this video (23% at its most extreme). This market moves fast!
Some say this happened because of the IMF, because of DeFi liquidations, or because El Salvador’s government handed out $200 million in bitcoin to its people, some of whom probably sold it as soon as they could figure out how to do so.
For me, this is normal volatility not “a dip.” Once bitcoin’s price gets down to $40k or lower, then we can talk about dips. I’m just following my plan.
I put together a 30-minute video but you can read the TL;DW below instead of watching it. You’ll miss some charts and commentary but you’ll save at least 25 minutes of your time.
The first 11 minutes look at Ethereum, the next 10 minutes look at altseason, and the last 9 minutes investigate conventional wisdom about how money flows through the altcoin market.
Please note:
When talking about the amount of ETH in smart contracts, I said the vast majority is in DeFi—I was referring to the vast majority of ETH that’s in smart contracts, not the vast majority of all ETH.
When reviewing the charts of ETH wallets, I accidentally called some of them bitcoin wallets. They’re all ETH wallets.
TL;DW—
ETH looks strong. The number of new addresses has started trending up again. Meanwhile, we see accumulation patterns for wallets of all sizes up to 100 ETH. After seeing whale wallets drop from late 2020 to May 2021, we now see them flattening out, with tentative signs of rising.
In other words, the market’s shifting in favor of people who want to have ETH not sell it.
On top of that, the proportion of ETH locked in smart contracts continues to rise, as does the amount of ETH in DeFi protocols. In fact, the amount of ETH in DeFi has almost reached its previous all-time high.
This suggests a lot of enthusiasm for ETH, generally the opposite of what you see in an asset that’s about to roll over to new lows.
I can’t analyze ETH with as much confidence as I can with bitcoin because ETH doesn’t have as much history and the data isn’t as robust or clear. Bitcoin’s on-chain and price patterns show striking similarities to its previous bull market consolidations. ETH shows positive momentum but I don’t have enough history or benchmarks to compare it with.
In any event, bitcoin still leads the market. If you want altseason, you need bitcoin to keep going up. So far, so good.
For my thoughts about bitcoin vs altcoin allocations, read my portfolio strategy.
So, “wen altseason?”
I don’t know, but we see some encouraging trends shaping up.
The total altcoin market has gone back to its May all-time high, but it’s done so in a very strong way—resembling a typical bottoming formation: peak, then a steady decline, a double-bottom, and steady rise.
Not textbook but close enough. Look at the pattern in this chart:
What happens next?
We’ll see. Generally, this type of bottom results in either a parabolic boom or a cup-and-handle pattern, both of which result in prices going up. I’ll follow this market as it evolves in the coming weeks and months.
A cup-and-handle means we’ll have a downturn of 50% or less before the price resumes its upward trajectory. A parabolic boom will continue our pace from late July.
Momentum remains with the altcoins until bitcoin’s dominance reaches the neutral zone shaded in this chart:
Until then, any give-and-take from alts to bitcoin reflects the normal ebbs and flows of the market. Sometimes bitcoin moves faster or stronger than altcoins, sometimes altcoins move faster or stronger than bitcoin. I talk about some potential scenarios in the video.
Suffice to say, if bitcoin’s price keeps going up over the coming months and altcoins hold strong against it, we will get a ridiculous altseason. It’s realistic to expect altcoins to go 5x higher than their prices in April once we get to the market cycle peak.
I’ll keep you posted on all of that.
Popular wisdom says the altcoin market has a certain cycle for the flow of money: large cap (top 10) > mid cap (top 50) > small cap (top 200) > micro cap (lower than 200).
In other words, money starts with big cryptos then trickles down to small cryptos.
I can find no data or patterns to support this view.
In fact, as shown in the video, when I compared the movements of dozens of altcoins since the beginning of last year, I found almost all of them generally went up and down at the same time, regardless of how large or small they were. Some moved a little earlier or later than others, but that happened regardless of their sizes.
If popular wisdom is correct, we should not see that pattern on so many combinations of altcoins. Large caps should lead, then mid caps, etc. But we don’t see that.
My theory, based on the data I see?
A rising tide floats all ships, big or small.
I made some other observations about altcoins and altseason in my January 2021 monthly issue.
One interesting pattern in the chart of ETH vs. other altcoins: a zig-zag pattern, suggesting money moves from ETH to other alts and back to ETH again.
This chart shows the value of all altcoins vs. the value of all altcoins minus ETH. I drew a line on top of the chart to show the zig-zags:
I’m not sure what to make of this. Do you have any idea what might cause this or what it means? Please comment below.
Relax and enjoy the ride!
Thanks for this update Mark! Very interesting the indicator total3/total2, I really like it. Where did you find it? Yes, if you look at that graph, it is telling that money are flowing in and out from eth to the other alts. However, if you adjust the scale of the y-axis to see 0 and 1, you can get a better picture. What I see is that from Jan 2018 till today, this flow of money leaving or entering eth from the other alts is really small, almost negligible. This ratio is around 70%, meaning 70% of the alts market is due to eth, which makes sense given the massive marketcap of eth. The interesting point is that this ratio is moving with a variation of 3% or less, moving between 67% and 73%. So pretty stable in the big picture. Thanks for sharing! :)
Hey Mark, thanks for the great update. You really provide such useful data with evidence when available as well as offer thoughtful perspective when you need to take an educated guess. On top of that I appreciate when you "don't know what to make of it", you say so. So thanks for that.
I don't have anything useful to add, just my own confusion with the non-dip volatility today.
I watched it happen in real time early this morning- from the lead up previous week(s) or so of feel-good bullish price action on BTC and ALTS (how bout that $FTM?! -nice run) right up to the first few price drop notifications I got. Those quickly became a downpour of alerts.
In fact, it happened so fast, even had I been better prepared I don't think it would have helped much. I'm not a day trader and couldn't possibly manage enough take-profit/stop-losses for my bag of alts without getting stopped out from typical volatility.
I had a few positions work out but I did not at all predict this selloff on this particular day. I'm learning to roll more with the volatility. But it's tough when it's happening right in front of me and I suffer from the shoulda coulda wouldas you can have in hindsight.
Unfortunately, I didn't do the one thing I said I'd do the last time- to take real-time notes of what, how and when just as a reference and possibly some clarity. But again I was more like a deer in headlights. I watched the truck approach from afar, then it arrived, then I was looking at its taillights and I barely blinked.
I noticed a few things I'll share if I can compile something meaningful from my timeline. But I definitely remember what alts it started with and thinking "that's odd, I never heard of these, wonder why they're shedding?"
Five min later I was looking at ETH and saw the first significant candle, happened be on Twitter reading what I thought was a random tweet from a crypto portfolio manager (I assume) saying what his stop-losses for ETH were and how much he'd sell at each level down to $3400. Didn't realize the action had already started.
Then Bitcoin - right after I read a Reddit thread about the attempt to coordinate a pump by buying $30 in support of El Salvador-- was digesting that as it approached 53k and I had the quick thought of "hmm I bet a short sell at 53k would do nicely right now". Not my style tho so I moved onto trying to catch everything else.
Before I knew it, it was too late (although I wouldn't really have done more than I did) and decided to sleep and assess the damage when I woke up.
I hope I can extract something more useful from what I watched over the last 24 hours. But really I'm just confused - how does everything dump at the same time? It seems so coordinated.
And why did $SOL and $FTM escape pretty much unscathed?
Yet the hype around $ADA didn't hold? These are the things I hope to sort out just for the sake of learning.
Any thoughts?
Cheers