Bitcoin is King - A Comparison of Market Cycles
Updated
The million dollar question, does the cyptocurrency market solely depend on the success of bitcoin? To some extent, yes. It has the potential to cause altcoins to advance, decline or become stagnant for sustained periods of time.
I believe this is down to three simple factors.
1. The overall flow of money (entering and exiting the market).
The overall flow of money can be observed as markets move from depression to euphoria and back again. The cryptocurrency market capitalisation on the 7th of January 2018 was $833 billion which is the highest recorded figure to date, and right now the market is currently valued at $369 billion.
In two months the market has lost almost $500 billion in value, this figure is not just based on money moving out of the market but assets devaluing in the process.
2. Investor confidence in bitcoin which either has a positive or negative impact on altcoins.
The success of altcoins can depend on the current sentiment towards bitcoin. If investors are not confident in the #1 cryptocurrency, it's stagnant, they most certainly won't be buying altcoins to run it through a new cycle.
I'd like to break this down using the current market cycle and previous market cycle.
I have used bitcoin, ripple and ethereum for comparison since these are the top 3 cryptocurrencies.
Current market cycle (2017-2018)
As you can see from the chart shown above, during July 2017 and November 2017 investor confidence was high for bitcoin as price moved from $1835 to $7900.
This is an overall increase of 334%.
During this same period, altcoins were stagnant as investors piled into BTC.
You can see as the cycle progresses for bitcoin, investor confidence is through the roof and the market becomes overextended at the psychological price level of $20,000... Money starts flowing out of BTC into various different altcoins (this relates to point 3).
Investors begin to reduce their holdings and move from BTC to altcoins or BTC to fiat.
Also to add to this analysis when BTC was trading at $20,000 on the 17th December it controlled 55.11% of the market. Once we entered a bullish phase for altcoins this dominance eventually dropped to 32.55% on the 4th of January.
Bitcoin remained at this level of market dominance until the middle of February.
Previous market cycle (2017)
A similar scenario, investor confidence begins to build as BTC breaks the all time high of 2013 and creates a new high at $1352.
Within two months the market breaks the all time high at $1352 and progresses towards $3,000, at this point investor confidence is through the roof and money starts flowing into the market causing a new cycle to begin for altcoins.
You can see how these two cycles hold many similarities yet they are completely different in their own way. The most interesting aspect for me was seeing the market dominance correct itself, until 2017 BTC held above 74.28% for years.
Although bitcoin was creating new highs throughout 2017 and covering a lot of ground, the market dominance dropped to 37.82%.
Market cycles may appear to be the same but the details are always different :)
3. All major exchanges offer altcoin trading pairs quoted in BTC (more popular than trading USDT or fiat), this means bitcoin is at the core of the crypto economy.
Below is a representation of a typical transaction (deposit, trade, withdraw).
Fiat > Bitcoin. Bitcoin > Altcoins. Altcoins > Bitcoin. Bitcoin > Fiat.
Below is a representation of the average trader (deposit, trade, withdraw).
Fiat > Bitcoin. Bitcoin > Altcoins. Altcoins > Bitcoin. Bitcoin > Altcoins. Altcoins > Bitcoin. Bitcoin > Altcoins. Altcoins > Bitcoin (rinse and repeat).
This is partly the reason why many altcoins follow the price of bitcoin, like we are seeing right now, the price structure for ripple and ethereum is almost identical to the movement we are seeing in bitcoin.
I believe this is down to three simple factors.
1. The overall flow of money (entering and exiting the market).
The overall flow of money can be observed as markets move from depression to euphoria and back again. The cryptocurrency market capitalisation on the 7th of January 2018 was $833 billion which is the highest recorded figure to date, and right now the market is currently valued at $369 billion.
In two months the market has lost almost $500 billion in value, this figure is not just based on money moving out of the market but assets devaluing in the process.
2. Investor confidence in bitcoin which either has a positive or negative impact on altcoins.
The success of altcoins can depend on the current sentiment towards bitcoin. If investors are not confident in the #1 cryptocurrency, it's stagnant, they most certainly won't be buying altcoins to run it through a new cycle.
I'd like to break this down using the current market cycle and previous market cycle.
I have used bitcoin, ripple and ethereum for comparison since these are the top 3 cryptocurrencies.
Current market cycle (2017-2018)
As you can see from the chart shown above, during July 2017 and November 2017 investor confidence was high for bitcoin as price moved from $1835 to $7900.
This is an overall increase of 334%.
During this same period, altcoins were stagnant as investors piled into BTC.
You can see as the cycle progresses for bitcoin, investor confidence is through the roof and the market becomes overextended at the psychological price level of $20,000... Money starts flowing out of BTC into various different altcoins (this relates to point 3).
Investors begin to reduce their holdings and move from BTC to altcoins or BTC to fiat.
Also to add to this analysis when BTC was trading at $20,000 on the 17th December it controlled 55.11% of the market. Once we entered a bullish phase for altcoins this dominance eventually dropped to 32.55% on the 4th of January.
Bitcoin remained at this level of market dominance until the middle of February.
Previous market cycle (2017)
A similar scenario, investor confidence begins to build as BTC breaks the all time high of 2013 and creates a new high at $1352.
Within two months the market breaks the all time high at $1352 and progresses towards $3,000, at this point investor confidence is through the roof and money starts flowing into the market causing a new cycle to begin for altcoins.
You can see how these two cycles hold many similarities yet they are completely different in their own way. The most interesting aspect for me was seeing the market dominance correct itself, until 2017 BTC held above 74.28% for years.
Although bitcoin was creating new highs throughout 2017 and covering a lot of ground, the market dominance dropped to 37.82%.
Market cycles may appear to be the same but the details are always different :)
3. All major exchanges offer altcoin trading pairs quoted in BTC (more popular than trading USDT or fiat), this means bitcoin is at the core of the crypto economy.
Below is a representation of a typical transaction (deposit, trade, withdraw).
Fiat > Bitcoin. Bitcoin > Altcoins. Altcoins > Bitcoin. Bitcoin > Fiat.
Below is a representation of the average trader (deposit, trade, withdraw).
Fiat > Bitcoin. Bitcoin > Altcoins. Altcoins > Bitcoin. Bitcoin > Altcoins. Altcoins > Bitcoin. Bitcoin > Altcoins. Altcoins > Bitcoin (rinse and repeat).
This is partly the reason why many altcoins follow the price of bitcoin, like we are seeing right now, the price structure for ripple and ethereum is almost identical to the movement we are seeing in bitcoin.
Note
I'd like to keep all of you updated on bitcoin and if we're still making progress long term.As we can see from the daily chart price is now testing the support trendline for the third time in just 5 days, there is a lot of selling pressure being absorbed at this level but I'm paying close attention to whether this level holds.
I still see price respecting the trendline, we are making slow progress at the moment and once we push back into $10,000+ investor confidence will start to build again, especially once we break and close above $11700. If we do experience a panic selling situation and support is lost, our long-term targets will be extended for bitcoin and altcoins which will delay the next cycle.
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