Alts, Corn, and Crystal Ball Gazing: What to Expect from Cryptocurrency This Year
Hello everyone and happy New Year. This is my first article for the year and I would like to share my general thoughts on crypto markets, with a focus on the short-medium term (~3 months). Last year taught me that when things are volatile, there are many changes so trying to see too far in the future isn’t that helpful. Yes, having some long term targets is helpful, however this doesn’t mean these will happen tomorrow.
Of course the first thing we’ve gotta start with is Bitcoin. People that have read my stuff know that over the last four months I’ve been bullish and primarily bullish on Bitcoin and not altcoins. However truth be told, there have been periods even I didn’t expect Bitcoin to be this strong; neither did I expect alts to have been so weak. My initial estimate was that near 24k, alt season would start and that in terms of time that would come early – mid December. So where did I go wrong?
Reframing Bitcoin’s Trajectory
In the event, Bitcoin was much stronger and behaved more like it did in Dec 2017, not Q1-Q2 2017. I didn’t really expect dominance to make a new high as this notion seemed a bit far-fetched. My last prediction for the arrival of alt season was the end of Dec – early Jan. The key reason why this didn’t come to pass was on account of all the regulations and the SEC going after XRP. That forced a massive capitulation for alts which, coupled with Bitcoin hitting 35k, was enough to bring them to their knees. The last alt season in 2017 started from a similar level and exactly after BTC had a 75-80% run since it broke 10k.
So what now? Where is Bitcoin? Has alt season started? How does the global macro landscape look like?
Based on several things I am looking at, 33-35k was likely resistance for BTC. The price got extremely high, very quickly and it was like being in a similar situation as when it hit 2.7-2.9k or 5k for the first time in 2017, or like hitting 14 in June 2019. So does this mean the price will collapse from here? In my opinion no. It is possible, but not likely. Why?
This Time Is Different
The market is way more mature for reasons I’ve explained in my previous articles, but will touch here briefly: liquid and diverse markets (spot & derivatives), much easier access, mature lending and mining, true believers have accumulated big amounts, less fear around regulations and friendly regulations so far, better security and understanding of the technology with a lot of education material out there… and of course institutional participation with big funds buying big amounts which they aren’t going to sell any time soon.
In my view the parabolic trend will most likely continue for some time. My 150k targets seem too low with something between 250-500k being more reasonable. Why? Very few are willing to sell, but too many are willing to buy. Even those that sell end up buying back higher. The global monetary system is in trouble and people need an escape. All that while people want to get rich. They heard about the gains in 2013 and 2017 and they can’t miss out again. Bitcoin has already had three big rallies and three big collapses, only to come back stronger. Now everyone has heard of it, most know that something is wrong with the financial system… yet only 3-5% of all adults aged between 18-65 years old have Bitcoin and most are underexposed. To me this is increasingly looking like the 2012-2013 rally and not 2016-2017.
The fact that 33-35k was resistance indeed and we had a 20% correction is very positive. 10-20% corrections are enough in this cycle for a bottom to be in. In 2016-2017 we had a lot of uncertainty and bad news, while now we have big boyz scooping up every dip. Even the positive news from the OCC regarding stablecoins is big. If we get a blue wave in the US and the recent insane regulations Mnuchin is trying to push don’t become law then we’ll have everything aligned for even greater upside. However, Bitcoin hitting this zone has much bigger implications for alts. It means that there is now enough new blood and Bitcoin holders are ‘rich’ enough to start diversifying into altcoins, something we’ve already started seeing.
My target of Bitcoin dominance was 77%, which was hit if you exclude stablecoins, forms of wrapped Bitcoin and all that. Since 2016 we have had thousands of alts being created and added to the total market cap… so it doesn’t seem crazy to me that it might have bottomed. Yet it is still early to call for a massive alt season. Yes there will be some alts that perform well, especially those that have broken above key resistance or are at new ATHs at the moment vs USD. We now have a lot more stablecoins in the market, we have a lot less scams, a lot of people are staking, there are working products out there and some being used daily. Access to altcoins is much easier now, where people don’t have to buy Bitcoin first and then alts. Now even institutions have some access to alts which, however, are currently not that liquid except Ethereum.
Life After XRP
XRP got hit very hard, which has left ETH to capture most of the gains for now. Initially XRP created panic, fear and destruction of capital… however now most of the capital that remained or will come in will be focused on other alts. This means they now have much bigger potential. This doesn’t mean alt season is a given right now, but that it is close and coming. One thing to notice is that Bitcoin dominance hit the same level it did back in Sep 2019 (or 77% by my analysis). However we saw such a massive spike in alts in late November, everyone screamed alt season and the whole thing flopped. Just something to keep in mind: XRP was the main reason BTC.D went down so much and the same reason it went so high (big pump and much bigger dump).
If you look at the total open interest, especially in coin terms (i.e BTC denominated contracts or divide USD total open interest by BTC) you will see it keeps trending down. Even the leverage that existed prior to the dump isn’t even that high, hence why dips are shallow. In that regard we are 3/5 of where we were in Feb 2020 before the big crash. Most coins are way more leveraged than Bitcoin is right now, which might be something holding them back.
In my opinion we are still early and the whole bull market could have another 6-12 months of upside, with at least one alt season coming. My view has been there will be two, but I have no doubt at least one will come. From the top of the previous one it has only been four months, so there is nothing to worry about. Alt seasons usually last 1-4 months and the downside afterwards lasts from 3-6 months.
The Ethereum Question
Having said all that, Ethereum is a key piece of the puzzle. ETHBTC bottomed at the exact same place after BTC went up 80%, but the big difference is that XRP is toast, BTC forks are fucked, privacy coins fucked, ICO money has been depleted and instead of BTC having massive fees, ETH has massive fees as >90% of everything is on top of Ethereum. ETH 2.0 is here, ETHE (Grayscale) has close to as much ETH as GBTC has BTC in % terms, ~7% of ETH is ‘locked’ in DeFi, and ETH has been declared to not be a security. So all that has me more comfortable with ETH for now as it has all that going for it (and more money).
ETHBTC Retested all the key areas on the way down. Maybe the yellow block and dashed line could have been retested, but nothing major. Looks like a massive head and shoulders with potential target at 0.052 and even up to 0.068. I think at 0.14-0.145 is where ETH flips BTC in terms of market cap, but that’s very distant for now. Right now BTC is essentially 5-6 months ahead of its previous cycle and by that time ETHBTC was printing an ATH vs BTC. If not an ATH, it was much higher than it is now…
That’s until the ETH killers narrative starts rising. Don’t get me wrong, it will. There is no way ETH will be at 2-3k and there won’t be people moving away from ETH. Yes ETH has a big network effect, but the problems that will occur due to high fees will get many people repelled by it. In 2017 it was about Bitcoin killers, now Ethereum killers.
In the past BTC pairs were 50% of the total trading volume and now it is only 10%, but most of those alts were used to accumulate BTC. Something similar happened this summer where most of the stuff on DeFi was used to accumulate ETH. Everyone was like “Who cares about ETH? I want this new thing that is now down 90%.” Many shitcoins will pump, all across the board… new narratives will arise with DeFi probably still being the main focus but for now I’d keep looking at stuff that is trending nicely.
BTC Still Rules
Could BTC destroy everything? Sure. It could let alts take a breath as it pauses and then just pull a 2x destroying everything on its way. But as ETH gets higher and breaks above its ATH vs USD, alts will start benefiting. Most Bitcoiners won’t be that prone to selling their BTC for alts, but ETH holders will be more inclined to diversify. That’s why ETH really matters and not only because many tokens get liquidity from it or are running on Ethereum.
To be quite honest I’ve thought for quite some time that a flippening is possible, but with time, probabilities go down. If ETH 2.0 phase 1 was here, I’d be very positive on that. To be clear my view is and will be that ETH can overtake Bitcoin’s market cap momentarily and then go down (0.157 back in June 2017 was almost a flip). Now the flip is lower because of the higher inflation (both due to mining and staking – BTC supply has increased by 10-12% over the last 3 years, while ETH by 18-20% and will keep increasing faster than BTC’s). The higher things go, the harder it is for Ethereum to evolve as when it gets to 500B or 1T Mcap, especially with so many things built on top, there is no room for error.