The current shitcoin dynamics and the potential alt season
My initial thesis before the halving was that we might had seen alts pop a few days before the halving, as Bitcoin wasn't really that high in price based on all models I am watching. In the end post halving the real sell the news was in alts as I don't consider a 10-20% chop as selling the news. Since then we have seen multiple alts pop, and pop really freaking hard. I was so glued on traditional markets and managing my BTC holdings, that I completely screwed up and didn't buy, so I am writing this to evaluate the current position for real and see how I should act. There is no bias from my side as I am trying to discover the 'truth' based on things I've been thinking for a really long time.
1. We are seeing more and more newbies come into the space as more and more people talk about Bitcoin as an alternative. Many people are watching the actions from Central banks and they are realizing the position we are all in. I listen to many traditional finance podcast, and believe me... they always mention crypto at some point even briefly. The attention from the halving and the sharp rebound, along with the money printing is getting everyone more and more interested.
2. Over the last 2+ years we are seeing more and more on ramps for Bitcoin as well as altcoins. Buying alts in 2017 was very hard, now it is a piece of cake. We have gotten multiple exchange listings even from regulated ones like Coinbase, Kraken, Gemini and even , as well as multiple stablecoin pairs all over the place. Binance, Huobi and OKex have all issued their own USD stablecoins and are very good on ramps. Not only do alts have more BTC & USD liquidity available, but much more freedom against BTC as they aren't traded solely against it.
3. 2+ years ago there was no staking. People can earn pretty good yields lending or staking their coins on exchanges, which makes them even more attractive that other alternatives. Newbies will think 'why hold something with 0 or negative yield, and not buying a crypto that gives me >5% and has even more upside?'. Locking or holding coins long term to stake them (as many people do), definitely allows the price to pump harder as there are less coins to sell at any time, which goes nicely along with incentive to buy them.
4. 2+ years there was no tech and it was all vaporware. Since then there have been many developments and the winners are separated from the losers. Good projects have survived and have build something, these projects have good listings and liquidity, while everything else is rekt. Of course many old shitcoins will pump and will do a 10x, but going from -99.5%, only gets you to -95% so they aren't that important. One of the most important this is probably ETH coming, which could be the main talking point for the rest of 2020 assuming the won't be significant delays and it will be here by the end of Q3.
5. We have seen the largest capitulation ever. Most altcoins have fallen 80-99.9% against BTC . The total altcoin market cap in BTC terms was down 80% in September but each individual alt is down much much more. Not only this but in USD terms the capitulation was even larger, especially as BTC hit -80% from its ATHs twice over the last 1.5 years. The people that were to be shaken out have been shaken out... Only a massive continuation of a collapse in stocks or insane pump by Bitcoin could really make alts bleed a lot. Not only this, but since Q3 2019, many alts bottomed and have had pretty good uptrends for quite some time, something that can be seen from Bitcoin Dominance bottoming in September 2019. The March 12th capitulation was even harder for alts and has probably made a few speculators prefer shitcoin spot trading from derivatives.
6. My post halving reasoning still holds, especially as we are post halving and alts are taking off. The reasoning was that speculators that exited alts to get into BTC to speculate for the halving would get back into alts eventually. The ALT-BTC buy the rumor sell the news. We kinda saw that with the previous halving, only that time there were some issues with Ethereum and alts had pumped hard before the halving. More on this point later on.
7. Not only are we post halving and speculation has died down, but there are currently some pretty serious issues with BTC . People fear the death spiral, fees going up or old coins moving. We saw all these happen in one go as miners started shutting down their machines (around 30% of all miners) something that is a significant amount. Now shitcoiners can attack Bitcoin and say it isn't as secure, it is too slow and that it has very high fees. These were the same attacks they used to help pump their bags in 2017 and I expect a very similar play book. Back then it was spam and Bitmain, this time around it will simply be too many people using it without understanding it... so they will all most likely start getting into shitcoins.
8. Today we also saw alts go up with BTC , which means their positive correlation could be back. Bitcoin looks a bit stuck as open interest is high and mostly from retail, but not with that many longs (looks better than the last time it was at 10k). Usually BTC goes sideways after the halving which could be the case again as it takes some time to re-accumulate in the 9-14k region.
9. To me based on the current TA it looks like shitcoins have been accumulated for a really long time and this is just the throwback before they really pop. Accumulation started in August 2019 and ended in January 2020. Now we have gotten the real throwback. The death crosses on all MAs 50-200-300 are still on and now Bitcoin dominance is about to close below the 200 DMA which is very for alts. Due to the insane the price got above the 200 & 300 DMAs , as well as horizontal resistance but to me that's just a deviation.
10. When I look at the entire altcoin market cap in USD, it looks like a massive of Bitcoin in 2015. The tradingview chart isn't that good, but it does look a bit similar. I wish I could add all the legit shitcoins and remove stablecoins to create a proper index... Anyways, to me a 70-80B ASSET CLASS that is related to money and payments, which all everyone is focused on (digital money, digital currency, avoiding capital controls, avoiding currencies that are collapsing, avoiding issues with banks, avoiding currency depreciation) is tiny. I think they are all shit, but I can't see how they are valued at 80B when the Nasdaq 100 is near ATHs and at the peak of the Dotcom bubble they reached 7 Trillion USD when the money supply was 70% smaller, while all shitcoins peaked at 500B and are still down 80%. Bitcoin is also pretty cheap as it is only 200% from its 3k bottom, which means alts could pump significantly vs BTC the cheaper it stays.
11. The bull market percentage seems to be turning again (from Turtlebc). It looks like a typical bottom, where there is a quick pump and then pullback. Alts bottomed 3 months after they topped in mid February which is pretty good time wise. Now it is clearly taking off again.
1. This time around as alts were taking off pre halving and then Covid came to ruin the party... Imho there would have had been a pullback, but probably not such a violent and not such a long one. In the previous cycle we had 3 alt seasons and now that the new one has began and alts have bottomed since September 2019 against Bitcoin , we haven't seen them really start their cycle. This part of the cycle isn't as great as the alts rallying after BTC hits new ATHs and maybe this time around we won't get a pump... Maybe alts have another leg down and the Jan-Feb pump was just a fake break out to trap people before they go down 50% vs BTC . This isn't impossible as BTC .D hasn't retested the 77-80% breakdown level. The thing is the attention is on BTC as larger players are getting in and prefer BTC as it is more liquid, accessible and trustworthy. So why not see another large Bitcoin rally as it breaks 10k leaving alts behind?
2. Lots of BTC is being withdrawn from exchanges. It looks like more and more people are getting their money out of exchanges and into wallets they hold. Maybe they are gonna do shitcoin OTC deals or they might be slowly putting those coins back into exchanges to pump them, but overall liquidity for alts is getting worse as BTC is their primary source of liquidity. Also as time passes Bitcoin becomes more and more scarce. We can see that more than 60% of the supply hasn't move in 1+ years, something that means that more strong hands are holding BTC . The more strong hands that hold it, the less alts can really take off against BTC . Margin trading, derivatives and options are getting lots of speculators to avoid alts and is definitely killing them in a sense as it is draining liquidity from them. Why risk money on shitcoins when you can buy options or go 100x when these can give you similar potential returns? Also BTC is the main collateral used in these cases which definitely makes it more scarce.
3. Post halving the Bitcoin rate is really low. However most shitcoins have had massive supplies that they keep on dumping on people, or really high rates. Even staking coins have issues as people are paying staking services + taxes on their additional coins, especially those with high staking rates as people could be dumping their additional coins or whatever. Any rate above 4% per year could be an issue both for staking coins and others against BTC . But high rates from staking/mining isn't the only issue, as many founders/VCs are dumping coins that get unlocked on to the market constantly + there is a constant influx of new coins every now and then, which is starting to increase with some major mainnet releases coming on. With more networks being functional, I don't know if more people will be willing to stake or the potential for a pre mainnet rally is lost... These networks are like large ghost cities that are great, but nobody lives there.
4. A major issue I see is all the different exchange listings and pairs which are essentially bleeding investor/trader funds into firms/individuals that do arbitrage as there are so many exchanges and so many pairs, that there are plenty of opportunities for them. This also doesn't allow shitcoin pumpers to do their job as easily as they have to coordinate their pumps in multiple exchanges. Another smaller issue I am also starting to see some experimentation with some shitcoins traded against USDT or other stablecoins only, as pump and dumpers probably to try to avoid the Bitcoin . I doubt this is really beneficial for alts, as no matter how much USDT comes in most people really want to trade for BTC . Most people have the goal to make more BTC or USD, and not ETH or something else which is definitely something that could change ones alts take off. For now people have woken up to the fact as to why Bitcoin matters, while all other alts are fighting each other in order to scam people.
5. Some other issues I see is that in 2016 when the pre-halving alt season started, the total altcoin market cap as 200x smaller than today, which allow it to pump a lot more. Ethereum is no longer used as money (for ICOs) or for trading pairs. This so far is giving less liquidity to alts which have issues when trading against exchange coins or stablecoins. Other issues could be the rise of Gold tokens, hashrate/ oil / gold derivatives which imho will also suck liquidity from alts along with the current IEOs which are all done in USDT or USD which suck fiat out and don't even help any other token appreciate (like ETH in 2017).
6. Currently BTC .D has made a higher low and a higher high, while retesting a key area and is still near the 200 DMA, so this might just be a trap. So far it has been mainly small caps that pumped, when usually it is large caps that pump. Also most large caps are up about 10% from their bottom, which is about the same as Bitcoin is down from its high meaning that alts have just covered their ground in USD terms, while it is mainly ultra shitcoins that are pumping.
7. Traditional markets could take another hit or they might actually really stabilize thanks to the fed. In the case the SPX goes to 1600 and we have major debt/credit/currency/liquidity crisis, I can't see this space not being hit. I am starting to lean on the fact that the USD could get weaker from here and the equities rally could continue... but I can't see how we could escape another leg down.
Now let's sum everything up and do the final commentary:
So far everything points to the fact that we are in front of a major alt season as long as traditional markets don't shit the bed. Closing above the 300 DMA on BTC .D would signal to me that it is time to get out and wait for quite some time until BTC tops or bottoms, with BTC .D going near 80%. If traditional markets tank and BTC does too, many alts will follow and if BTC has another sharp rebound alts would be hurt again. BTC has had its 3rd golden cross in 13 months and is at levels I'd call fair/cheap based on all data I see about it. The sentiment in the space is , and even if stocks go down I think crypto will go much higher faster. The wipe out in March was mind boggling and I don't expect the same situation to repeat, especially with all the actions from Central banks which definitely benefits us. There are many bubbles out there, but crypto definitely isn't one. It is the exact opposite, an anti bubble.
If you are focused on making more BTC and you don't care about USD returns, this is probably a good time to be accumulating if you haven't done so already. In my opinion we will see lots of coins do more than 10x in this part of the cycle, but not coins that are already up significantly. Sure there will be quite a few cases like LEND, RCN , UBT, LINK etc, but don't expect 2016-2017 style returns. If the average return back then was 100-300x, this time the average could be 10-30x. Keep in mind that many coins will pump multiple times in the cycles and at the same time not everything will pump together. There are lots of coins that are absolute trash and won't do anything, so add some FA along with your TA to get better results. Many shitcoins will have dead cat bounces or some ultra strong pumps and then go lower, so don't invest in anything for long term. Also keep an eye on new coins but don't rush to buy anything that comes out immediately.
Based on my time horizons I would try to ride this trend for up to 3 months, so I'd adjust my shitcoin portfolio so that you can take big draw downs and accumulate if alts drop another 30-50% from here (I can't see them go any lower).
Otherwise I'd recommend to ride shitcoins with trends and buying on pullbacks, especially on retests of breakouts once a good trend is establish. If you wanna play the long game start slowly and add all the way down, but don't go into 1 coin only. If you wanna accumulate, 5-20 bags are decent. For me mid-small caps are much better than large caps because many large caps don't even look that good, but having a mix isn't a bad idea.
Remember shitcoins aren't going anywhere, neither is Bitcoin . At least not for the foreseeable ... Don't marry your bags or consider that money lost forever. Diversification and patience is key here, as I've been following a really large number of coins, all of which eventually had a decent pump... but it took them months and months and it lasted only a few days or even hours. Treating them like options (having the potential to go to 0 and being illiquid) is a great strategy. Buy a few, set a few targets, wait, profit.
As for the TA, BTC looks stuck for now... but even if it goes up alts can follow. If BTC pops to 20k and alts get squeezed (that 30-50% drop I was talking about), then I could see a repeat of 2017. Why? Because they would return back to pre 2017 bubble and they would split the potential returns in 2 parts, rather than 3 parts as they skipped the pre halving/post halving pumps and pumped only post ATH .
At this point I am too tired to continue and I feel like I am rumbling. I think I've forgotten a few points, but I will reread tomorrow and add anything I've forgotten. Apologies if this wasn't readable... From now on I will start putting out more crypto ideas and only crypto ideas, because if alt season is near, then there is no reason to trade other crap.
1. Bitmex losing dominance is definitely beneficial for alts as it is a Bitcoin only platform. More of that can flow into exchanges/derivatives platforms that use alts or usdt as collateral, allowing shitcoins more room to grow.
2. DEX's have grown significantly and have the potential to grow even more. Even though I think DeFi is totally stupid and people keep on losing millions there, it is creating an interesting synergy along with stablecoins. As USDT etc have moved away from Omni and into Ethereum & Tron, it is much easier for those platforms to benefit from that liquidity
3. Looking at the Altcoin market cap in BTC terms, the bubble has popped and it looks like a 5 elliot wave move (not that I use them), but I think there is maximum on more leg down which could be the final capitulation. As more and more shitcoins have been born or existing ones inflated to death, it is pretty normal to have the market cap at much higher levels than anything pre April 2017.
4. This wave could be lead from newer coins that aren't in the top 20, something would allow for much larger potential returns. For example XRP and ETH haven't really pumped for quite some time over the last two years, while many coins have given some big gains in quick bursts or long lasting trends. XRP and LTC didn't do anything in 2016, because they had pumped hard in 2015... So it wouldn't be weird at all only for one part of the market to pump as Bitcoin is still below its ATHs.
5. Bitcoin being bearish isn't bad for alts. Cheap BTC is definitely good as long it isn't volatile. Volatility is bad for alts, not Bitcoin going down something that many people completely miss.
6. I have followed more than 300 alts over the last 10 months and I can tell you that if you had done some research and bought a few coins every now and then at relatively low prices (not even at the bottom) you could had made lots of money. Most chop chop chop or bleed, and the boom... they went up 300-1000% from their bottom. All you had to do was not buy totally random shit without any TA or FA and hold them with patience until they popped. Both exiting and keeping that in BTC or you redistributed those profits to other coins would had given you pretty good returns. In investing slow and steady wins the race!
7. The dominance PA is at a crucial point. To me it looks more bearish that bullish but as I said before, I don't trust that chart that much. Looks like a massive SFP and inefficiency fill by retesting the big break down in January. On LTFs in clearly formed a higher low and lower low, and the long term trend line is further below which has been tested multiple times...
8. The USD has broken down against EM currencies, which is definitely positive. The NDX (QQQ) is near ATHs and my last point of real resistance was 9500-9600. Something I mentioned in my previous idea and heard again on RealVision, is that crypto companies and the networks themselves don't have debt. Most are well capitalized and have good access to funding. It is clear from the tech boom that companies that have lots of debt and low growth prospects are hit the hardest, while anything tech related and with no debt has done incredibly well. Can't see why that doesn't hold here too...
As you can see most of these are bullish, not bearish but I am very clear on what I am looking at for now.
From the way I look at things most coins on average are up 60% vs BTC. That means you need to be careful when aiming to high with a coin... The probability of finding the new LEND, UBT etc is kinda low.
For BTC blocks are really slow, lowering selling pressure even more. High fees kinda offset that, but they are going down again.
Bitcoin during the weekend usually has lower volatility, which is beneficial for alts. I haven't done a study, but overall this seems to be the case. So far it is just chopping around the CME close with nothing special happening.
The ones really beaten down and most heavily accumulated have been smaller coins. The less the bag holders and the more beaten down a shitcoin is, the easier it is to pump.
Some extra notes on what I have said so far:
When new IEOs/ICOs launch, they are inflating the supply but when they go up they create a wealth effect. That's how these bubbles work! People make money and then they feel richer so they want to invest more to make more. When new coins go up after getting listed on a major exchange, it is a sign that the tide has turned, even if that is a short term thing.
Zilliqa, Theta, Iotex and a few others have had really good pumps because they also had the bonus of some upcoming launches. When things are bearish, these news have a smaller effect. Now we can see that they really took off which is another sign.
Overall the liquidity pool of BTC and others for alts has grown substantially. Not only more exchanges have them, not only buying them is easier, but as miners keep on dumping... Alts have more room to grow as they have more liquidity.
Now in the past BTC and ETH were the real constraints for alts, and maybe even the amount of fiat on ramps that existed. Now with USD being plentiful for alts, there is no real cap for them. They can grow a lot more than they did in the past as relying on scarce assets that people are invested in (BTC & ETH) isn't the best thing for big pumps.
(50% from BTC gains + 100% vs BTC + 100%*50% multiplier effect). People will be more inclined to sell when they have those extra gains.
How can I take this analysis seriously when you claim ETH hasn't pumped majorly in 2 years, even though it almost trippled in value last year?
ETH & LTC what it has done in USD is pretty much meaningless to me. I only look at their USD charts only to get a better view and only that. I am talking about BTC only and that should had been extremely clear by the end of the analysis.
For XRP and LTC I talked about 2016, not 2019 or 2020 and the point was that small caps have a much higher chance to pump hard and this has been the case for the last 9 months. Go check how many have pumped since August 2018 and by how much. Again I am talking in BTC terms, not USD. If BTC goes up it lifts all boats and all I care how I can leverage that even more with alts. BCH, XRP, EOS, TRX and LTC have all underperformed BTC massively over the last year and it is extremely obvious. Sure ETH has done better than others, from its September 2019 it is up only 40% vs BTC which is nothing in the grand scheme of things as ETH is still below its Dec 2017-July 2019 baseline