Bitcoin Dominance

Bitcoin dominance has recently surpassed 60%, a level it has largely fluctuated within for the year. Historically, Bitcoin dominance tends to rise during bear markets following a cycle's end, as seen in 2018 and 2022. However, the current situation is nuanced. Unlike previous cycles, there wasn't a significant rotation from Bitcoin into altcoins, and Bitcoin topped due to apathy rather than euphoria. This lack of a strong altcoin rotation means there's less pressure on altcoins against Bitcoin. A key argument is that Bitcoin remains the strongest asset within crypto, and over the long term, other crypto assets tend to bleed back to Bitcoin. This is further supported by restrictive monetary policy, which discourages investment in higher-risk assets. While the Federal Funds Rate is near the neutral rate (approximated by the 2-year yield), it hasn't significantly decreased, preventing aggressive Bitcoin dominance gains. A critical issue highlighted is the methodology of the Bitcoin dominance metric on TradingView, which includes stablecoins. When stablecoins are excluded, Bitcoin dominance shows a more significant upward trend, having bottomed around 60% in September of the previous year and now nearing 68%. This exclusion reveals that altcoins have actually been underperforming Bitcoin. Major altcoins like Ethereum, Solana, and BNB have seen substantial losses against Bitcoin this year. The rise in Bitcoin dominance, when stablecoins are excluded, is largely attributed to the increase in stablecoin dominance itself. Historically, when Bitcoin dominance hit highs, stablecoin dominance was much lower. The current higher stablecoin dominance artificially suppresses Bitcoin dominance. If stablecoin dominance were at previous levels, Bitcoin dominance would be significantly higher. The concept of opportunity cost is paramount. While some argue altcoins offer better returns, the reality is that Bitcoin has provided significant returns (e.g., an 8x move in the last cycle), whereas many altcoins have underperformed or fallen by the wayside. The speaker emphasizes that while a few altcoins might outperform Bitcoin during its dominance uptrend, it's a risky strategy. The overall trend for "Total 3 minus USDT divided by Bitcoin" (representing altcoins excluding stablecoins against Bitcoin) has been a downtrend for years. The speaker dismisses recent periods as "alt seasons," labeling them as mere volatility rather than sustained gains. The weakness in altcoins was exposed when Bitcoin entered a bear market, revealing thin books and low liquidity. This weakness has been present since 2021, with altcoin pairs against Bitcoin showing lower highs from cycle to cycle. The current high interest rates, even after quantitative tightening ended, continue to be a headwind for altcoins. In contrast, in 2019, when interest rates were much lower, altcoins eventually bled against Bitcoin until rates approached zero. This historical data supports a bearish outlook on altcoin pairs against Bitcoin. Furthermore, altcoins have been underperforming not just against Bitcoin but also against other major asset classes. Total 3 against the NASDAQ is significantly below its 2021 levels, and Total 3 against the S&P 500 is trading where it was in mid-2022. This suggests that investing in major indices like the NASDAQ or S&P 500 would have been a more prudent choice over the last five years than investing in altcoins. The speaker reiterates that altcoins, miners, and crypto companies tend to bleed to Bitcoin, as Bitcoin represents the "king" of the cryptoverse. This bleed-back phenomenon, though sometimes taking a cycle or two to become apparent, has been a consistent historical trend. Comparing altcoins to gold further illustrates their underperformance. Altcoins have traded at lower valuations against gold in recent years than even during the previous bear market lows. Gold and silver are presented as safer long-term investments compared to altcoins. Altcoins against silver are also at significantly lower valuations than in previous periods. The speaker cautions against the persistent narrative of an "altcoin season" always being around the corner, noting that these trends don't change overnight and that many who have been bullish on altcoins for years have been consistently proven wrong by market data. The speaker likens altcoins to "penny stocks" of this generation, acknowledging that while rare exceptions can become successful, the vast majority fail. This is generally accepted in traditional finance but not yet fully in crypto, where many influencers still promote diversified altcoin portfolios as superior to Bitcoin. The speaker highlights that altcoins have been bleeding to Bitcoin, the S&P, NASDAQ, gold, and silver for five consecutive years. The current restrictive monetary policy, exacerbated by rising energy prices due to geopolitical conflicts, further dampens prospects for altcoins. The market is not pricing in significant rate cuts for 2026, suggesting continued macro headwinds for higher-risk assets. The recent spike in oil prices has coincided with altcoin sell-offs against Bitcoin, as inflationary pressures prevent the Fed from cutting rates. Even during periods of significant money printing, Bitcoin dominance (including stablecoins) has maintained higher lows, indicating the underlying weakness of the altcoin market. The speaker observes a consistent downward channel in altcoin pairs against Bitcoin, characterized by lower highs and lower lows. While Bitcoin might experience counter-trend rallies, the fundamental argument remains: the point of holding a higher-risk asset that consistently bleeds to a lower-risk asset is questionable. The speaker dismisses the "what about" game, where individuals point to isolated successful altcoins, arguing that these are exceptions that often fail and are replaced by new narratives. The speaker has observed this pattern with Solana, XRP, Ethereum, and privacy coins over the years, with altcoins generally following a similar path of decline against Bitcoin. Further evidence of altcoin weakness is seen in the declining advance-decline index of the top 100 cryptocurrencies and decreasing search interest for terms like "altcoin" and "cryptocurrency." Historically, declining social interest correlates with altcoins bleeding to Bitcoin. While search interest saw a temporary spike due to bot cleanups on platforms like X, overall interest on platforms like YouTube and app rankings continues to decline. In conclusion, the speaker maintains a generally pessimistic view on the altcoin market as a long-term investment. While short-term opportunities may exist, Bitcoin is presented as the only crypto asset truly worthy of a buy-and-hold strategy for a decade. The speaker acknowledges that Bitcoin itself has experienced bare market rallies, similar to what was seen in 2018 and 2022, and doesn't discount the possibility of further upside. However, the comparison to the stock market's consistent new highs while Bitcoin has lagged suggests that Bitcoin may not necessarily follow suit, especially in midterm years. The speaker believes this is a "reset cycle" for Bitcoin. Finally, the speaker anticipates stablecoin dominance to rise again, potentially affecting Bitcoin dominance, but expects Bitcoin dominance to eventually surpass its previous highs in future bull markets, reinforcing the long-term trend of altcoins bleeding to Bitcoin.