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| By Bruce Ng |
While we love our market leaders Bitcoin (BTC, “A-”) and Ethereum (ETH, “B”), most of the big gains crypto is known for are actually made in altcoins these days.
Given the proper conditions, altcoins can rally as much as two to three fold even in a bear market. This is because smaller cryptos have more room for potential growth.
Naturally, then, it is important to identify when altseason — a key period when altcoins outperform the market leaders — will occur.
There are three events that we typically need to see from a money flow perspective that indicate an altseason is on the horizon:
1. Funds flow into BTC first so its price increases.
2. Funds then flow into Ethereum, and the ratio of ETH to BTC price (i.e., ETH/BTC) increases.
3. All these extra funds then flow into the majors, mid-caps and finally small-caps for a glorious altcoin rally.
Last week, Bitcoin broke above the trading range it had been in to cross above the psychologically important $30,000 level.
That fulfilled the first event and is the first sign of an impending altseason.
But then, the price retreated.
Bitcoin Dominance Rejected from Key Resistance Level
Click here to see full-sized image.
When I say market dominance, I am referring to the measure of how important Bitcoin’s price is to the overall market and in determining the flow of funds. You can tell BTC’s market dominance by understanding its market cap in relation to the market cap of the entire crypto space.
In short, the greater BTC’s market cap is in proportion to the entire crypto market cap, the greater its market dominance.
When BTC crossed $30,000, its market dominance hit 47% — the highest it has been since June 2022.
However, it got rejected from the 47% resistance line and is now dropping slowly. This means the funds that flowed into Bitcoin are now flowing into other coins like ETH.
That fulfils the second event and acts as the second sign of a coming alteason. If we see Bitcoin’s dominance trend down to around 43-44%, then the alts would be in great shape.
That brings us to the third and final sign.
ETH/BTC Retested and Bounced off a Multi-Year Trendline
Click here to see full-sized image.
ETH/BTC is simply the ratio of the price of ETH to the price of BTC. Think of it as a bellwether for an alt rally.
Whenever BTC goes up, and if ETH/BTC follows later, this shows relative strength in ETH and indicates a strong possibility of funds flowing from ETH to the alts.
Remember the money flow process works like this: BTC à ETH à majors à mid-caps and small-caps.
For the past month, ETH has climbed from $1,600 to break above a major resistance level at $2,000. If this rally continues, there is a possibility it can make it to the $2,500–$2,600 range.
The conditions are simple: If ETH goes up to $2,500, that will be my third sign that we should expect a blast off for alts.
If it gets rejected by overhead resistance, strong support is in place in the $1,900–$2,000 range. However, if it heads back down to test support near $1,900, altseason could be delayed or potentially even cancelled.
We’ll need to observe the price of ETH carefully over the next few days.
But the reason I am hopeful we will see this third sign is because of the successful implementation of Ethereum’s Shanghai upgrade last Wednesday. This event finalized a long series of upgrades which transitioned ETH from a proof-of-work to a proof-of-stake chain.
My colleague Alex Benfield touched on the upgrade in his issue last week. Basically, the upgrade unlocked all the staked ETH depositors had put in way back in December 2020.
In the lead up to the event, everyone was waiting with bated breath to see whether all that unlocked ETH would flood the market and send the price down … or if stakers would hold.
With Shanghai over and done with, all that uncertainty has been erased as markets shifted to risk-on positions, enabling ETH to rally as high as $2,100 before retreating slightly.
Atypically, it was a sell the rumor, buy the news event.
The Shanghai upgrade also established another point of clarity for the market: Staking and unstaking tech really works, paving the way for Ethereum to maintain its top position as the leading Layer-1 chain in crypto.
One more revolutionary fact that is quite frequently overlooked when discussing the upgrade is that staking ETH now pays a yield of roughly 5%. This means for the first time in crypto history, we have a major asset in crypto paying out a yield that encompasses the entirety of crypto.
In the future, all yields in crypto will be benchmarked to this ETH yield. That is not to say the notoriously high yields often found in DeFi will disappear.
Rather, due to ETH’s pervasiveness, all yields will be compared against it.
Preparing for the Altseason
To put yourself in the best position to make the most of this situation, you will need to start looking for promising altcoins now — before altseason officially begins.
And there are a few tools at your disposal to help in that search.
First, you can browse our Weiss crypto ratings to see the top-rated altcoins. You can also set price alerts for your favorite coins to let you know if and when they start moving.
If you are looking for more hands-on tools, I recommend checking out my colleague Juan Villaverde’s Weiss Crypto Investor service. In it, Juan uses his Crypto Timing Model and the Weiss ratings to send members “Buy” and “Sell” alerts on the most promising crypto assets and crypto-leveraged stocks.
And, of course, keep checking in here for market updates as we track the journey to the next altseason.
Best,
Bruce Ng
