Observing Bitcoin Dominance At Extremes
Updated
I've seen a lot of posts calling for a drop in Bitcoin dominance here. Most are looking at the rising wedge and extremely overbought weekly indicators, divergences, etc. But here's something I noticed. It may not mean anything, of course. On the right is the inverted Dominance chart from the altcoin peak in the beginning of 2018. On the left is the recent top for Dominance. You can see that each extreme was characterized by an initial blowoff and then a series of failed trend continuations (lower highs, in our current case) before an eventual reversal. What's crazy is that the dominance bottom in 2018 actually took much longer. So this could go on for a while, although the little blue downtrend I've drawn says otherwise. In addition, if we want to talk sentiment, do you remember how crazy the altcoin mania was at the bottom for Bitcoin dominance? Most people (myself included) thought that Bitcoin would be dethroned. Now, we observe the polar opposite extreme. Most people have clearly sold their alts for Bitcoin and are extremely skeptical that Bitcoin will ever be challenged again. This push and pull between Bitcoin maximalism and development in the blockchain space is necessary for the crypto market to continue evolving, in my opinion. This dynamic needs to evolve in order for growth to remain healthy, and for people to feel motivated to build things in the crypto space. And right now, I think we are at an extreme. I don't think the market can handle much more of this and stay healthy. These are my opinions. Take 'em or leave 'em.
We still do not know whether or not we've seen the top for Bitcoin Dominance. I did try to call the bottom on ETH/BTC recently, and I said that between 17800 and 18200 was the support zone to look at (obviously with a stop loss). So far, that zone has indeed acted as strong support. My analysis will be invalidated of course if Dominance makes a new high. The 70-72% resistance zone should be very strong, considering this was a major pivot area during the great altcoin bull market of 2017. If the high is set, it would be pretty bullish for the whole space. If dominance makes a new low thereafter, it would confirm that Bitcoin Dominance is in a macro downtrend. One step at a time though. There are fundamental reasons for a high Bitcoin dominance as well, which should not be ignored: Risk aversion, network effect, liquidity, brand recognition, security, etc.
However, I do not think it's unlikely that we eventually get a substantial influx of capital into coins like XRP and ETH (the two biggest movers in the crypto space, other than BTC). All the signs are there that would allow for some cryptocurrencies to play catch up soon. XLM (one of the worst performing major alts) has snuck out of its falling wedge on low volume, which is much better than a high volume rejection. Volume should be low following a bottom for a bullish asset, because demand needs to be able to naturally outpace supply, without much effort. This is what happened to Bitcoin earlier this year when it consecutively broke out of several downtrends. Those downtrend breaks, although on low volume, allowed me to speculate that the bottom had been in. Volume doesn't really come in for crypto until peak mania, as we saw when Bitcoin was at 13.8K.
Here's the dominance chart next to the Bitcoin/USD chart to show the speculative market cycle phases I've drawn out (boxes 1-10). The blue boxes represent sideways consolidation periods for Bitcoin, while the pink represent impulse moves. You can see that the first real drop for Dominance didn't occur until Box 6, when Bitcoin tested its previous all-time-high, but that dominance already showed some signs of weakness in Boxes 4 and 5.
In our current cycle, I think we are potentially in Box 4 (the first sideways period after the first two big moves). I guess it's even possible that we're in Box 1, which would actually be even better for alts. But it seems that the cycles are a little out of wack, with Bitcoin bottoming faster and alts extending their own bottoms. Hard to say.
Anyway, that's it. Just wanted to post this for future reference. This is not financial advice. This is for personal and educational purposes only.
-Victor Cobra
We still do not know whether or not we've seen the top for Bitcoin Dominance. I did try to call the bottom on ETH/BTC recently, and I said that between 17800 and 18200 was the support zone to look at (obviously with a stop loss). So far, that zone has indeed acted as strong support. My analysis will be invalidated of course if Dominance makes a new high. The 70-72% resistance zone should be very strong, considering this was a major pivot area during the great altcoin bull market of 2017. If the high is set, it would be pretty bullish for the whole space. If dominance makes a new low thereafter, it would confirm that Bitcoin Dominance is in a macro downtrend. One step at a time though. There are fundamental reasons for a high Bitcoin dominance as well, which should not be ignored: Risk aversion, network effect, liquidity, brand recognition, security, etc.
However, I do not think it's unlikely that we eventually get a substantial influx of capital into coins like XRP and ETH (the two biggest movers in the crypto space, other than BTC). All the signs are there that would allow for some cryptocurrencies to play catch up soon. XLM (one of the worst performing major alts) has snuck out of its falling wedge on low volume, which is much better than a high volume rejection. Volume should be low following a bottom for a bullish asset, because demand needs to be able to naturally outpace supply, without much effort. This is what happened to Bitcoin earlier this year when it consecutively broke out of several downtrends. Those downtrend breaks, although on low volume, allowed me to speculate that the bottom had been in. Volume doesn't really come in for crypto until peak mania, as we saw when Bitcoin was at 13.8K.
Here's the dominance chart next to the Bitcoin/USD chart to show the speculative market cycle phases I've drawn out (boxes 1-10). The blue boxes represent sideways consolidation periods for Bitcoin, while the pink represent impulse moves. You can see that the first real drop for Dominance didn't occur until Box 6, when Bitcoin tested its previous all-time-high, but that dominance already showed some signs of weakness in Boxes 4 and 5.
In our current cycle, I think we are potentially in Box 4 (the first sideways period after the first two big moves). I guess it's even possible that we're in Box 1, which would actually be even better for alts. But it seems that the cycles are a little out of wack, with Bitcoin bottoming faster and alts extending their own bottoms. Hard to say.
Anyway, that's it. Just wanted to post this for future reference. This is not financial advice. This is for personal and educational purposes only.
-Victor Cobra
Note
Bitcoin touching the bottom of the channel again and alts invalidated the short term downtrend on dominance. Not looking great for the market. The loss of confidence in alts may now be spreading to Bitcoin. Might have to find some lower support areas. There's still a bit of room for the market to fall towards the low 200B area (total market cap) to retain the long term bullish trend. Note
Nice potential rejection wick forming here though. Note
A failure for dominance to make a higher high here could mean that we're close to starting a reversal.Note
Nice bullish hammer on the hourly chart for XRP. It won't mean anything unless it can get above the short term downtrend though. Note
The short term downtrend for dominance has been cleared and ETH has broken below the 0.017 area (my suggested stop loss) with no sign of a bounce yet. We need to see ETH get back above there on increasing volume. We also need ETH to break its recent downtrend against the USD (which it has not). Dominance has a couple of options. It can head higher towards the previous wedge support, or it can confirm a larger wedge and make it up to 75%. The next horizontal resistance for dominance is around 77-80%. Note
We need to observe the altcoin market cap, which shows that it's still clearly in a strong downtrend. Once that breaks, perhaps ratios can have some relief. Note
The downtrend for altcoins has finally broken, and as long as prices remain stable for the next couple of hours, we will get a green doji right on the wedge resistance. This is pretty significant, and my initial hunch that dominance wouldn't be able to sustain much further upside might be correct. Note
After failing at a new high, dominance has broken down from all possible rising wedges, and may close relatively bearish this week. Note
If dominance is going to continue its descent, I'd really like to see this previous resistance turned support broken. Note
Note
Looks like it might want to test the low 70% area. If the 69% area falls, we could see some pretty massive ratio increases. 
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