Bitcoin's dominance stagnated, falling below $27,500 as it was "sucked" by altcoins?

Bitcoin has fallen for several consecutive days and has now fallen below $27,500. Bitpush terminal data shows that Bitcoin has fallen by more than 10% since last Friday, and Ethereum , the second largest cryptocurrency by market value, has fallen by 8% during this period. As of the close of U.S. stocks on April 21, Bitcoin was trading at about $27,300, a 24-hour drop of 3%. According to CoinGlass data, in the past 24 hours, more than $170 million worth of derivatives contracts were liquidated, of which more than 80% were long positions, and the total liquidation this week exceeded $400 million.

TradingView data shows that Bitcoin's dominance rate rose from 42% to 48% in the first quarter and has struggled to break through this level so far this month. Professionals say that the growth of Bitcoin's share of the entire crypto market has stagnated, suggesting that the altcoin season may be coming.

“Bitcoin dominance may be peaking, which would suggest altcoins will outperform the broader market,” Markus Thielen, head of research and strategy at crypto services provider Matrixport , said in a note to clients.

Altcoins refer to any cryptocurrency other than Bitcoin. TradingView data shows that Bitcoin's dominance rate indicator has fluctuated between 38% and 48% for the past two years, and the decline from the 46%-48% level coincides with the excess returns of altcoins. In the two months after BTC's dominance rate fell from 48% in July 2021, the total market value of altcoins (white curve, near the blue arrow in the figure above) rose by more than 60% to US$1.39 trillion. The decline in Bitcoin's dominance rate in mid-October 2021 and June 2022 also pushed up the valuation of altcoins.

Thielen believes that history may repeat itself, writing: "Bitcoin dominance appears to be reaching similar levels as 2022 - 45/46% of total cryptocurrency market capitalization. For Bitcoin to continue to outperform the rest of the ecosystem, it means that only Bitcoin matters, which seems unlikely given smart contracts deployed on other chains and market funding preferences."

Money is indeed pouring into altcoins, especially meme coins. For example, PEPE, a token named after the sad frog emoji, has surged to $86 million in market value in less than five days, becoming the sixth most valuable meme coin on Coingecko’s list.

Exchange reserve ratio continues to decline

CryptoQuant analysts pointed out that the past bull market began with the accumulation of US exchanges. A related indicator is the "Exchange Reserve Rate", which measures the reserve ratio between any two exchange platforms. Exchange reserves refer to the total amount of Bitcoin currently located in the wallet of a centralized exchange (or a combined wallet of several platforms).

By tracking the trend of the ratio of Bitcoin reserves in the United States to offshore platforms over the past few cycles, the analysis found that the pattern of this ratio historically preceding the start of a bull market has not yet formed. Because historically, when we move towards a bull market, the holdings of US platforms relative to offshore platforms have increased.

The above chart shows that the ratio has been decreasing in recent months. In fact , the indicator has been on an overall downward trend since 2014, which means that the share of US exchanges has been shrinking over the years, and many new offshore exchanges have emerged (and have grown to considerable size).

CryptoQuant analysts pointed out: "The proportion of Bitcoin held by US exchanges, banks and funds has not yet increased. I think it is too early for a real bull market to arrive."

Halving cycle and 200-day moving average

According to Ben Lily, a cryptocurrency industry expert, the current halving cycle is an important factor to consider when evaluating Bitcoin price trends, and there is one most important indicator: whether BTC is above or below its 200-day moving average (MA). When BTC climbs above this MA, it can be a very reliable bullish signal.

Lily pointed out that in each of the past three halving cycles, the price of Bitcoin fell below the 200-day moving average (MA) between 217 and 315 days before the halving. If this pattern applies to the current halving cycle, it can be expected that the price of BTC will fall below the 200-day MA sometime between June and August, which could lead to the final "shake moment" as Bitcoin falls below the 200-day MA, thus forming a higher low.

When talking about where Bitcoin will go next, analyst Micheal van de Poppe believes that BTC has entered an unpredictable zone. He places the next key point at the $27,600 level. Considering that Bitcoin was supported in this range before rebounding above $30,000, it becomes an important level. Van de Poppe explains that the rally from this level could continue, but a quick breakthrough is needed: “There could be a drop in liquidity, but a quick recovery is needed”.

On the other hand, the bears have set up a resistance level of $28,800, and analysts explain that breaking through this level is crucial, and if the bulls are unable to break through, the BTC price may return to the area around $26,000.

This pullback does not look optimistic. Tom Essaye, founder of Sevens Report Research, said in an interview with CNBC: "It is hard to believe that the market is ready to move arbitrarily from here to new historical highs. In other words, the bottom of the bear market has not yet arrived."

Sheraz Ahmed, managing partner of Storm Partners, analyzed in his tweet: "When looking at the annual chart of Bitcoin, it is clear that we have just witnessed a period of extraordinary growth as the industry recovers from the crypto disaster of the past few years. We may be witnessing the beginning of a belated but overall healthy adjustment, which should encourage further accumulation."