Bitcoin Dominance To Surge Into December

Key Concepts

• Bitcoin Dominance: The percentage of the total cryptocurrency market capitalization that is held by Bitcoin.
• Quantitative Tightening (QT): A monetary policy where a central bank reduces the size of its balance sheet by selling assets or allowing them to mature without reinvestment. This typically reduces liquidity in the financial system.
• Quantitative Easing (QE): A monetary policy where a central bank injects liquidity into the economy by purchasing assets.
• Altcoins: Cryptocurrencies other than Bitcoin.
• ETH/BTC Pair: The trading pair representing the value of Ethereum relative to Bitcoin.
• Total 2 (or Total 2 minus USDT): Refers to the total cryptocurrency market capitalization excluding stablecoins like USDT.
• Total 3 (or Total 3 minus USDT): Similar to Total 2, but often used to represent the altcoin market cap excluding stablecoins.
• Bull Market Support Band: A technical indicator used in cryptocurrency charting, often representing a range where a cryptocurrency's price tends to find support during a bull market.

Bitcoin Dominance: Current Status and Short-Term Outlook

As of November 10th, Bitcoin dominance is reported to be just below 60%. The speaker maintains the opinion that Bitcoin dominance will likely increase in the short term, despite recent fluctuations. While the upward trend might not be as rapid as desired, the speaker emphasizes that identifying the direction of movement is more crucial than predicting its exact speed. The current upward trend in Bitcoin dominance has been ongoing for approximately eight weeks.

Factors Influencing Bitcoin Dominance

Quantitative Tightening (QT)

A significant factor supporting the rise in Bitcoin dominance is ongoing quantitative tightening. Historically, in the previous cycle, Bitcoin dominance topped in the post-halving year. While the absolute peak for Bitcoin dominance in the last cycle occurred during quantitative easing (QE), the current QT environment is seen as a catalyst for increased Bitcoin dominance. The speaker anticipates that Bitcoin dominance could potentially peak around the time quantitative tightening concludes, which is projected to be in early December.

Altcoin Performance Against Bitcoin

A recurring pattern observed is that larger altcoins tend to bottom out against Bitcoin in early December. This is supported by an analysis of historical ETH/BTC trading pairs across various Decembers (2015, 2016, 2017, 2018, 2019, 2020). While there have been exceptions, such as December 2021, the general trend suggests that ETH is likely to continue dropping against Bitcoin into early December. This decline in altcoin performance relative to Bitcoin would consequently lead to an increase in Bitcoin dominance.

Total 2 (Altcoin Market Cap excluding USDT)

The speaker projects that "Total 2 minus USDT divided by Bitcoin" (representing the altcoin market cap excluding stablecoins relative to Bitcoin) is likely to drop into early December. In some scenarios, it could even retrace to the lows seen in June. A bounce off these lows is considered a likely outcome, which would further support the upward trend in Bitcoin dominance.

US Dollar Strength

The continued upward trend of the US dollar is another factor contributing to the expected decline of altcoins against Bitcoin. Historically, a strengthening dollar often correlates with altcoins dropping against Bitcoin over extended periods. The current chart analysis shows the dollar slowly trending upwards, forming a low similar to the 2017-2018 period before gradually increasing. This reinforces the expectation that altcoin/Bitcoin pairs will continue to weaken.

Short-Term Altcoin Relief and Long-Term Trend

While the overall outlook for altcoin/Bitcoin pairs is bearish, the speaker acknowledges a potential brief relief rally in early to mid-November. This is evidenced by green performance in the past week and the current week, mirroring similar patterns observed in prior cycles (e.g., 2020 and 2017). However, this relief is expected to be temporary, with a likely drop back down by early December, which would again boost Bitcoin dominance.

ETH/BTC Pair Dynamics

Despite the general decline in altcoin/Bitcoin pairs, the speaker believes that the ETH/BTC pair will likely form a "higher low." This nuanced prediction explains why it's challenging to pinpoint the exact peak of Bitcoin dominance. The speaker notes that while altcoin/Bitcoin pairs have been making lower lows (e.g., in April, June, and October), ETH/BTC has been putting in higher lows. This suggests a potential shift in liquidity back towards Bitcoin, even as other altcoins continue to devalue against it.

Historical Parallels and Liquidity Flow

The speaker draws parallels with 2019, a period characterized by quantitative tightening and interest rate dynamics. During that time, Bitcoin managed to stay above $10,000 for an extended period, similar to its current resilience around $100,000. In 2019, Bitcoin also absorbed liquidity from the altcoin market. The speaker posits that a similar dynamic is occurring now, making Bitcoin a more favorable holding than altcoins.

Bitcoin's Role in Bull Markets

The historical data indicates that whenever Bitcoin has reached new all-time highs, Bitcoin dominance has surged leading up to those milestones. This pattern is observed across multiple cycles. Therefore, if Bitcoin is poised to reach a new all-time high, a significant increase in Bitcoin dominance is expected. Even if a new all-time high is not achieved and the market has already peaked, Bitcoin is still anticipated to hold its ground around $100,000, leading to further devaluation of altcoins against Bitcoin.

Post-QT Dynamics and Altcoin Weakness

The speaker recalls that in 2019, a significant drop in altcoin/Bitcoin pairs occurred after QT ended, when these pairs were trading around 0.25. The current situation is interpreted as the initial phase of such a drop by altcoin/Bitcoin pairs, with the current relief rally being a temporary pause before a further decline. This anticipated decline in altcoin performance is expected to drive Bitcoin dominance significantly higher, even if it is currently below 60%.

Bull Market Support Band and Breakout Potential

Bitcoin dominance is currently attempting to break through the "bull market support band." The speaker notes that Bitcoin dominance closed the previous week at 59.9%, indicating it is nearing a key resistance level. While many anticipate a rejection at this level, the speaker holds the opposing view, believing that Bitcoin dominance will likely break through.

September Lows and December Surges

The speaker reminds viewers that Bitcoin dominance typically finds a low in September and then surges into December. This pattern has been observed in multiple prior years, including 2017, 2019 (leading into the end of QT), and 2020. This historical precedent forms the basis for the speaker's base case scenario: liquidity is expected to flow to Bitcoin ("the king").

Conclusion and Recommendation

The speaker's base case is that Bitcoin dominance will continue to rise in the coming weeks, despite any brief pauses. Even if Bitcoin is trading sideways, it is considered a much better investment than the altcoin market. The overarching theme is that liquidity is expected to consolidate into Bitcoin, especially in the lead-up to potential market shifts and historical seasonal trends.