Summary Bitcoin’s had a post-Election price surge. On-Chain Metrics moved moderately Bearish, but this time may be different. The large U.S. national debt, budget deficit and soaring interest payments may motivate the government to print money and debase the U.S. Dollar. The stars are lining-up for the beginning of Altcoin season. Some tell-tale signs of Altcoin season are declining Bitcoin Dominance and Altcoin price breakouts on high volume. Introduction I've written several articles that highlighted the twists & turns of Bitcoin's ( BTC-USD ) journey to $90K. I have always been LT bullish on Bitcoin, especially given the catalysts of the halving, Spot ETF approval, and now we have a favorable regulatory environment and talk of a Bitcoin Strategic Reserve . On March '24, I became Bearish ( Bitcoin: "Beware the ides of March" ) predicting a local top (meaning temporary top) after strong gains. Bitcoin then entered a "digestive phase" until the recent Election in which prices soared. What I got wrong Since the Fed began raising rates in 2022, I expected by the very least that the U.S. would have a mild recession. Almost every instance of Federal Fund Rate rises has witnessed slowing economic growth - a negative for risk assets, including Bitcoin. However, this never occurred, and the Fed's recent dovishness in the face of strong GDP growth has all but eliminated the potential for recession. On-Chain Metrics ("OCTA") I utilize a holistic approach to measuring risk, including my own Risk Indicator, Sentiment, charts and a slew of On-Chain Metrics. They are again showing confluence - meaning indicators from different data-sets and different assets (Bitcoin, Crypto, Equities...) are moderately Bearish. Some of the major categories and their readings are below: Sentiment (Very Bearish) Blockchain Usage (Neutral reading) Investor Profitability (Bearish) Long-term holder behavior (Neutral) Liquidity & ETF Flows (Bullish) Derivative Positioning (Bearish) Miner Activity (Neutral) Sentiment ("Fear & Greed": very Bearish) The chart below is Bitcoin's price color-coded with the Fear & Greed index and as you can see, the index is at Extreme Greed (~90) which of course is a contrarian-indicator. Prices are likely to decline but probably on a temporary-basis. BGeometrics Blockchain Usage (Active addresses: Neutral reading) Active addresses' had been lackluster since March, something I found very concerning, as one can see from the chart that sharply dropping addresses typically portend a fall in Bitcoin's price. There are expanding use-cases for Bitcoin, such as Ordinals (i.e., NFTs) and the Lightning Network (for payments, remittances, etc.), however, this isn't showing up in the data. The Bitcoin ETFs, which are custodied differently than having personal wallets, may also have affected the data. The good news is that there's been a sharp rebound recently. There has been huge momentum with both retail, institutional and potentially sovereign governments embracing Bitcoin. Recently, the BRICS countries said they were planning a new currency based on a basket of assets including Gold, currencies and potentially Bitcoin. BGeometrics Investor Profitability (NUPL, Bearish reading) Essentially, when investors have high net unrealized profits, there's a tendency to want to sell Bitcoin and cash out of the market. Net Unrealized Profits-Loss (BGeometrics) Derivative Positioning (Bearish) Open Interest is at record highs, funding rates are positive, and the market is in Contango (Future price > Spot price). All of these align with local market peaks as there's more demand for futures in speculative markets, which not only pushes up the funding rates, but it raises the Bitcoin Futures price as the maturities lengthen. ARK Invest calls Contango " Futures Rolling Basis " in the chart below. On the positive side, both funding rates and Contango are not at peak levels despite the sharp run-up in Bitcoin prices. This is a sign that we're not yet at a major top. (As a sidenote: there's some fancy trading going on with hedge-funds that are shorting the Futures market and buying spot Bitcoin.) ARK Invest BGeometrics Why this time may be different As Shakespeare said, "What's past is prologue." But I think a nuanced examination is required. I gave you a few examples from a slew of indicators that show Bitcoin's in a high-risk area. However, I'm not so bearish this time around… Bitcoin is at a point in its Halving Cycle when prices begin to accelerate. Concurrently, demand for the spot ETF continues good - in fact, it seems to be accelerating more recently! The Block The Money Printer may go into overdrive The U.S.'s national debt is huge, at $36 trillion and the country faces over $1.1 trillion in interest payments that are rising rapidly given that a large portion was financed with short-term treasuries that need to be refinanced at higher rates. Creative Planning One can do the math, but there is no way the U.S. can repay this amount of debt given its huge budget deficit and declining workforce. So it's left with only one solution: print more money, and that's where global liquidity comes into the picture. Once the Fed eases off its Quantitative Tightening, along with lowering rates, global liquidity could spike up. Below is a chart showing M2 growth and Bitcoin's price. In fact, you can substitute Bitcoin for nearly any risk-asset (tech stocks, S&P 500) and you will see a similar correlation! BGeometrics Passing the torch to Altcoins As much as I believe Bitcoin is "Digital Gold" I think the setup is ripe for a period when Altcoins outperform. This mania-phase is commonly called " Altseason " or "Banana Zone" by Real Vision. I expect this to occur within the next six months, depending on the interplay between economic growth (or lack thereof) and liquidity. Remember…the U.S. has been under an economic regime of Fiscal-dominance (i.e., lots of spending) which will likely give way to a period of Monetary-dominance. Altcoin Season (Blockchaincenter) After years of uncertainty and "Regulation via SEC enforcement", it's clear that the Trump Administration will encourage Gary Gensler to resign and replace him with a supportive chairperson. Further, Congress is likely to finally pass Crypto legislation (see list here ) that gives our community clear "rules of the road." Fundamentally this is more favorable to Altcoins than Bitcoin as digital gold has already been accepted by regulators. Main factors portending the upcoming Altseason: Falling Bitcoin Dominance Sharply rising Bitcoin prices, leading to a "wealth effect" High-Volume breakouts of some Altcoins Rising Altcoin interest via Google search Trends Rising Russell 2000 Index and long-duration/MEME stocks getting traction My framework is that as Bitcoin rises, a wealth-effect is created and investors become overconfident. They then trade on leverage and sell Bitcoin for faster horses. This tends to occur after Bitcoin Dominance reaches 60-65% (where we are now). The chart below shows the last two Altcoin Seasons (2017, 2021) with "Others" being Altcoins minus Ethereum. CoinMarketCap Several Altcoins (e.g., Solana (SOL-USD)) have broken-out on high volume, but not enough of them have risen to qualify for Altcoin season. Dogecoin ( DOGE-USD ) has risen substantially post-Election, and it's trading at the highest relative strength since 2021. However, these gains may be idiosyncratic - attributed more to Elon Musk. Google Finance If one looks at Google search trends, we can see that interest in Altcoins is growing rapidly. This makes sense because investors research (well, that's the hope!) coins before trading them. Google Trends Lastly, I'm noticing a host of MEME stocks such as Carvana ( CVNA ), long-duration SaaS software companies and small caps that have been outperforming. Creative Planning What could go wrong? A Black Swan Event in any risk asset could halt the Altcoin season, as crypto is an extremely volatile risk asset. The more likely scenario would be if U.S. inflation re-emerges. I think this is a probable event, given that the Fed has been reducing rates too quickly, despite a strong economy and above- target inflation . Evidence of this can be seen in the Yield Curve, which rose sharply after the Fed's initial 50bps rate cut. The Fed implicitly acknowledged this on 11/14/24 in a recent speech . Conclusion I'm seeing "green-shoots" prepping us for an Altcoin season, so I published this article, so readers can prepare. There are several highly rated Altcoins, some of which I wrote on SA: Solana ( SOL-USD ), Polkadot ( DOT-USD ). More risk-adverse investors should probably veer no further than Ethereum ( ETH-USD ) as it's considered "battle-tested" and it's a favorite amongst large institutional asset managers. Well, that's my two Satoshis!
