While I am long-term positive on Bitcoin and most of the Cryptocurrency market, I fear that this latest bounce is again a short term relief actually led by those who have shorted Bitcoin and have since bought back to cover positions and take profits. The metric I continue to measure for this sentiment is Bitcoin Dominance which continues to be at 43% which is high relative to 2018 metrics from the all-time high of the market capitalization.
Source: https://coinmarketcap.com/charts/#dominance-percentage
Despite the latest almost $50 billion increase in Market Cap, BTC dominance has remained strong demonstrating its continue leadership position in the markets. It continues to be the determining factor of whether the market rises or falls. The high correlation demonstrates that investor sentiment is also driven by the Bitcoin price instead of individual asset performances. The interesting thing about the last quarter is that even the big market names like Ethereum and Litecoin have also underperformed Bitcoin moves. When sentiment is positive, more investors look towards assets that are correlated but cheaper to acquire in expectations they will outperform due to their smaller market capitalizations.
Therefore, unless BTC dominance falls below 40%, I think the overall market is still headed lower. I would expect larger capitalization assets to correlate more to Bitcoin but that has been a mystery for me for the last couple of weeks which is why I am concerned about this bounce. I would have expected a large capitulation sell off to a new low with high volumes before a bottom could really be called.
Source: https://coinmarketcap.com/charts/
However, the volumes being seen in the last week are a bright light. The market averaging above $20 billion per day is something to look for as volume helps in confirming changes to trend. These fluctuations don’t change my strategy as I continue to hold most assets and buy some on dips while I can given that some prices look attractive. There is a turning point coming soon as the news and sentiment about blockchain and cryptocurrency continues to be more positive via news than what it was earlier this year as FUD terrorized the markets. Interesting to see that positive news doesn’t move the prices the same way FUD moved them lower earlier in the year. That could be because prices have normalized and seem to be at a balance of supply and demand right now which is overall positive.
What are your thoughts on the markets and where it is headed? Is the bottom in? What does that mean for prices going forward? I look forward to your thoughts and engagement in the comments below!
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Great post, looks like I will also start looking at bitcoin domamince as sentiment moving forward too.
Makes sense but the sudden move in price upwards with volume should signal good things to come.
Volume can definitely help but it will have many resistance levels above. Trends is really not broken until above $10k in my opinion.
I am hoping it continues its bullrun.
I feel like its a dead cat bounce
People might go for the lower market share coins but if they don’t have a solid use case it’s a crap shoot as to whether it will pump and die
Agreed! We should expect a flight to quality as the projects start to fail or succeed. More and more have failed so the ones that are left have been survivors so far.
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I need a crystal ball.