Bitcoin dominance cycle suggests that 2017 cryptocurrency rally may repeat itself


For historical comparison purposes, it is worth noting that the pattern of the dominance map currently looks very similar to the situation in early 2017.

Since May 12, the market has collapsed, Bitcoin (Bitcoin) The dominance has undergone huge fluctuations, reversing the mainstream trend of 2021. Before the serious start of the sell-off, BTC’s dominance has been steadily declining, from about 70% in January to below 40% at the time of the crash. At that time, BTC’s dominance was at its lowest point since the summer of 2018. Since then, it has recovered to more than 43%.

If the same pattern is happening this time, then the market is likely to be on par with the climax of the summer of 2017, and there are still a few months away from the Bitcoin price high of $20,000 in December 2017.

Of course, although these models have some interesting similarities, the dominance of BTC does not necessarily fully explain the price. But it does provide insights about the performance of flagship assets relative to other markets, which underpins certain trends. So, what is the possibility of BTC’s rule and what does it mean for the market?

Follow the flow of funds

The capital flow model is a potential predictor of market trends. The model states that funds flow from fiat currency into Bitcoin, then fall from the broad market to mid-cap stocks to small altcoins, then redirect back to BTC, and finally return to fiat currency.

This model is interesting because it almost summarizes what happened in 2017, except that the cycle was played twice as BTC soared to the end of the year. Therefore, if the situation of 2017 is repeated, BTC’s dominance may continue to rise until the flagship asset sees another price peak, and then decline as the high-incidence season accelerates again.

In addition to the creepy similarity of the dominance maps, the behavior of alternative markets also provides some signs that they may perform according to historical cycles.In early May, Cointelegraph reported that altcoins have Push the previous cycle higher to support -The last time this move occurred in 2017.

If this cycle repeats itself, it may still push the high-price market to a higher level in 2021. Although the performance observed in May may not provide much assurance in this regard, there is also no indication that BTC and the broader market will not perform according to long-term trends. Sam Bankman FriedThe CEO of the FTX and Alameda Research exchange told Cointelegraph:

“If we enter a long-term bear market, I expect BTC’s dominance to rise as it did in 2018-2019; but the corrections we have seen so far are not enough to trigger this.”

But wait…

For individual investors who wish to follow the flow of funds, there is an important consideration. Robert W. Wood, the managing partner of Wood LLP, warned in an interview with Cointelegraph: “The elephant in the diversified space is tax.” He added: “Until 2018, many investors may claim that according to Article 1031 of the tax law, one The exchange of one cryptocurrency with another cryptocurrency is not taxable. But the law changed at the end of 2017.”

Indeed, Omri Marian, director of the Graduate Tax Program at the University of California Irvine School of Law, confirmed that transactions between cryptocurrencies are likely to trigger tax obligations and explained to Cointelegraph:

“Any reading of one type of crypto asset as another type of crypto asset is a taxable event. Therefore, regardless of the profit motive, crypto asset investors must consider the possible tax rebalancing of the investment portfolio. fact.”

Shane Brunette, CEO of CryptoTaxCalculator, told Cointelegraph: “If investors switch between BTC and altcoins, regardless of whether they are cashed in this year, their capital gains and losses will be realized within this fiscal year.” In addition, he clarified: “This activity will reset the time for investors to hold assets, which will affect the eligibility for long-term capital gains discounts. “

Therefore, please note that following the flow of funds may come with its own set of costs, so there is no guarantee that this pattern will repeat, as new variables may have an impact.

Unknown quantity

The most critical difference between 2017 and now is the presence of institutions in the market. At least for Bitcoin and to some extent such as Ether (ETH). A large number of alt markets, including almost all low-cost coins and Memecoins, such as Dogecoin (Dog), led by retail traders and investors.

Checking the dominance map, as institutional interest in cryptocurrencies begins to surge, BTC seems to have been boosted by the end of 2020. Until about January, its dominance has been rising.

However, there is evidence that institutions may be behind the recent increase in BTC’s dominance. On May 21st, The whale has bought $5.5 billion worth of BTC The price is less than $36,000; two days later, the crypto hedge funds MVPQ Capital, ByteTree Asset Management and Three Arrows Capital Everyone confirms that they are dipping sauce buyers.

Therefore, it is possible that the sudden restoration of Bitcoin’s dominance may not be attributed to normal market cycles, but to be affected by institutional whales snapping up discounted BTC.

Adventure, but how far do you have to go?

The question is: to what extent will institutional participation change the dominance of BTC compared to 2017? Perhaps the most critical difference between institutional and retail investors is that institutions are more likely to follow current market conditions and avoid risks accordingly. Therefore, as investors choose to get rid of risk substitution, BTC’s dominance is rising.

related: Do you want to travel a long distance?When Bitcoin plummets, institutions stay strong

However, based on the “buy on dips” report, there seems to be no reason to assume that investors are getting the most risk out of the cryptocurrency itself-at least for now.In addition, bullish BTC reports show that the market turmoil in recent weeks has not stopped bullish sentiment from continuing to spiral. Seems to be rising.

Therefore, there is still a great opportunity to continue to hold interest in BTC, and there is no major bad news to undermine the sentiment surrounding cryptocurrencies, and the money flow model may still work again. For now, if history remains strong, BTC’s dominance will increase even further before investors start to get involved in large altcoins again.