Altcoin Market Update - September 7, 2021

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!