The past weeks capital flowed into equites and out of cryptocurrencies. Interest rates and Gold were largely unchanged. While the VIX decreased 19% at equities had a 2% rally.
Digital assets encountered some selling throughout the week, as the BTC tide seemingly lowered the bar for the great majority of digital coins.
Volume on the digital exchanges continued to decrease as it appears some market participants are exiting the market. One must also remember in Digital Coins, for money to flow into all things not Bitcoin, multiple transactions have to be made. For example, Bitcoin to Doge Coin to a smaller market cap coin. Hence during broad based rallies especially those including coins outside of the top ten, volumes will tend to increase dramatically.
To illustrate this point, in early January when the Cryptocurrency market was making all-time highs, the total dollar volume traded was near 68 billion dollars over one 24-hour period. Keep in mind that in late November, it was the first time the market volume ever traded more than 15 billion in one day. By comparison, the average daily volume over the past week was 16 billion dollars.
During that same time period in late November 2017 to early December 2018, guess what the total cryptocurrency market valuation was? Roughly 360 billion and at the time of this writing, it is currently 368 billion.
Initial capital flowing away from BTC = Decrease in BTC Dominance = Money flows into other coins = Higher trading volume = broad based increases for the asset class.
I would also note in the crypto sphere the great majority have long only positions and many were granted margin on exchanges to trade other currencies, leveraged against their long positions. We are simply seeing a washing out process of some leveraged longs and day traders.
One of the major themes that did end this week, was the Bitcoin Dominance. It showed a fractional decrease and, in my opinion, this has been one of the key bull-bear indicators. Bitcoin dominance hit an all-time low in early January as the entire Crypto market was hitting all-time highs. Ever since then, BTC has gained market share vs the rest of the asset class. I have said it before and will say it again, for the entire cryptocurrency market to have a sustained broad-based rally, Bitcoin Dominance needs to decrease.
I will give a comparison to US equity weightings in the NASDAQ as an example. AAPL is 11.3%, GOOG 9.3%, AMZN 9.3%, MSFT 9.3%. The total weight of these companies in the NASDAQ is 39.2%
Bitcoin Dominance in the cryptocurrency market is 41.5%
Whether you are long BTC, LTC, DOGE, $PAC, ERP, etc, etc, we are all by default embedded Bitcoin longs. With the current market structure with BTC being the primary trading pair for nearly every digital token, the market will have a hard time rallying if BTC does not increase.
How can one use this BTC dominance to his or her advantage?
Look beyond the BTC pairing of the coin you are researching.
Is the coin experiencing gains or losses in US Dollars? Are these price changes due to the BTC price movement or is your pairing increasing or decreasing vs Bitcoin?
In short, looking at the market cap of the asset you are interested in will be an invaluable tool as this cryptocurrency space matures even more.
Is your coin outperforming the rate of inflation, or in crypto terms is the coin price holding steady as more coins as mined daily, if so, that is good.
It sounds simple, but I have spent a great deal of time on social media watching traders and investors saying their coin is “mooning,” “pumping,” or “dumping,” as its BTC Satoshi value changes but the US Dollar value does not. So, unless one uses Bitcoin exclusively for day to day expenses, the USD value of an asset is still of the utmost importance.
This market appears to be in a consolidation and investor re-evaluation mode. The total market cap is setting up a fairly large trading range with the support being in the low to mid 300’s and the resistance right around the 500 billion mark.
The cryptocurrency market seems to be maturing at a very fast pace, as the market was down roughly 18% over the past week, yet there was no surge in volume, and each successive attempt at news lows for the week was met with buying.
For a sustainable broad-based rally in the digital asset market we will need the three following things to happen.
BTC dominance to decrease below 40
Total daily cryptocurrency volume to trade in excess of 20 billion for more than 36 hours.
Attached are a few charts to illustrate some of these points.
Crypto Currency Market Cap Support and Resistance within current range
Cryptocurrency Total Market Cap One Week
Cryptocurrency Total Market Volume in Dollars, December 2017 to Present