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Crypto Market Cycles - Time To Rotate Into Altcoins?

Crypto Market Cycles - Time To Rotate Into Altcoins?

And how do I play it.

March 08, 2024

Hello Investors,

BTC crossed ATH on all currencies, including USD.

We could elaborate on how it’s not real ATH when we consider inflation, but it’s done.

Now what?

I focus on altcoins.

Let’s explore.

Market cycles

Markets move in cycles. Stocks, bonds, and crypto. We even categorize stocks into cyclical and non-cyclical (read more).

These cycles follow major macro trends and events, such as the global liquidity cycle or a crypto-specific, BTC halving.

The phases are:

Accumulation: This phase marks the beginning of an upward trend, often occurring after the market has bottomed out. Investors start buying, betting on the market's recovery, while the general sentiment is still bearish.
Uptrend (Mark-Up): Here, the market gains momentum, and more investors jump in, attracted by the rising prices. Positive sentiment starts to build, and investments begin to pay off.
Distribution: The peak of the market cycle, where early investors start to take profits, leading to increased volatility. Signs of overvaluation prompt the more cautious investors to exit their positions and rotate to different assets.
Downtrend (Decline, Correction): Following the peak, the market experiences a decline, with prices dropping as more investors decide to sell off their assets. This phase can be dangerous but also presents opportunities for those looking to buy in at lower prices.

Great video explaining the cycles I strongly recommend to any investor:

Crypto version

In crypto, these cycles look like this:

BTC hits new ATH
Then suffers a ~80% drawdown
Price bottoms 1yr after cycle top
It takes ~2yrs to recover to prior cycle highs
BTC rallies for another year before topping out at a new ATH

Today, we are entering stage 5.

This doesn’t mean we are guaranteed to see a 12-month rally, nor that there won’t be any correction, quite the opposite.

Last cycle BTC reached new ATH in April 2021, followed by 14 weeks of drawback before reaching new highs in November 2021. This was -33k or -52% in 14 weeks.

This drawback was followed by an 18-week rally, reaching new ATHs before entering the bear market.

What does it mean? There were and will be many opportunities, don’t FOMO all-in on the top.

Side note: rainbow colors are showing days until halving.

Altcoins and BTC

The past 2 crypto bull cycles followed two stages:

At the beginning of the rally, bitcoin outperforms the market.
Investors rotate from bitcoin to altcoins, and they outperform bitcoin.

A simple way to track the ratio of BTC vs. altcoins is through BTC Dominance.

This follows the cycle description we introduced before - investors start carefully with the (perceived) safest asset, as the market recovers, this investment starts to yield desired returns, and investors are ready to move into more volatile and risky assets searching for better returns.

In traditional markets, this is the phase where we stop investing in blue chips and start exploring pink sheets or overpriced IPOs (that still skyrocket right after the IPO).

This table shows the bull market's different stages (phases) and how it looks in numbers.

The second stage is much shorter compared to the long accumulation phase which takes around ~2 years, and it ends when you hear the craziest stories of overnight crypto memecoin millionaires, 3x per day.

If you want to learn more, there are 3 ways:

History doesn't repeat but it rhymes.

Last cycle people said “This time it will be different”, and it wasn’t.

This time, I feel it will be different, but we might see the same playbook.

How can we play it?

Cash out now - stop checking the charts, take the profit, and wait for a major dip (if any comes).
Keep buying/holding BTC & ETH, waiting for new money and ATHs.
Buy more altcoins (higher altcoin exposure).

How do I play it?

Many macro events are yet to hit the markets:

China is already pumping the economy (read more), the US is lagging and we are waiting for the rate cuts.
ETFs are still buying BTC and that’s before the big pension funds, asset managers, and other institutions called the board meetings and decided to invest.
Money market funds are on record highs of $6.3 Trillion, $2.3t from retail (s, s). That’s without ETFs and other products. This "cash“ can move into risky assets, like crypto.
ETFs bought ~$6b which pushed BTC to previous ATH. If only 1% of the cash moves into crypto, that’s 10x more than what ETFs bought until today.
As the market recovers, we see many partnership announcements that are bringing crypto closer to the users - both retail and institutions.

This is a solid list of reasons for me to stay in the game. So option 1 is out of the picture, I don’t want to try to time the market and miss this opportunity.

To reduce this already long piece, I’ve increased my exposure to altcoins, focusing on a few sectors:

Infrastructure
Gaming
DePIN
BTC L2 & BRC-20
DEX & Derivates

In these sectors, I choose projects that make fundamental sense to me, have decent tokenomics, and I think are the safest —> my aim with altcoins is to reduce the risk, not maximize the profits, those are high on anything in the right sector that doesn’t burn.