Bitcoin has staged a remarkable recovery in 2019, posting gains in almost every consecutive month. After starting the year at $3800, Bitcoin last week reached an 18-month high of USD $13,768. However, while Bitcoin has soared, for the most part, altcoins have not been able to keep up. Are altcoins dead or just biding their time?
In the bull market of 2017, altcoins were buoyed by Bitcoin’s rising tide. However, so far in 2019, this has not been the case with the rest of the ecosystem left far behind. Many retail traders have been anxiously anticipating a potential ‘alt season’, a short period in previous cryptocurrency bull markets where altcoins posted extreme gains against both USD and BTC trading pairs. However, a 2019 ‘alt season’ has not yet eventuated. Some metrics suggest this could be due to a new breed of buyers driving the Bitcoin price action, growing confidence in Bitcoin, weakening confidence in altcoins, and a range of new market options.
Altcoin winter continues
As pro trader Josh Olszewicz described on a recent Brave New Coin podcast, alt seasons tend to follow a similar pattern, "Bitcoin makes a run, altcoins follow in USD terms but are unable to maintain the pace in BTC terms, and then people take profit in Bitcoin and those funds rotate into the higher cap stuff, Ethereum, Litecoin, and Monero, etc, then eventually into the lower cap stuff as Bitcoin goes sideways and consolidates."
This cascade towards smaller cap coins tends to be preceded by high, and then falling levels of Bitcoin dominance of the total crypto market cap. This has occurred numerous times, most notably in January 2018 when many altcoins appreciated in value 10X and more against BTC.
The Bitcoin dominance metric hit a recent 16-month high of 62%, however, there is yet to be any significant resurgence in the wider altcoin market. This suggests that buyers simply aren’t yet interested in exchanging their Bitcoin for smaller-cap altcoins.
One possibility is that there is growing market confidence in Bitcoin’s long term value, especially compared to lower cap utility tokens with uncertain longer-term value.
A different kind of buyer
Google search trends for “Bitcoin” hit a 16-month high during the recent surge to an 18-month price high of USD $13,768 at the end of June. However, they remain a long way down from the extreme Google search volumes of December 2017.
Olszewicz suggests this could be down to higher awareness, with fewer people needing to Google Bitcoin to understand what it is and also because a fundamentally different set of buyers have been pushing up the price. "I honestly don’t think we’ll ever see Google searches reach the level they were at in 2017 because for the most part there are a lot more articles now, most people have heard about bitcoin already," said Olszewicz.
Instead of enthusiastic newcomers, Olszewicz suggests the recent rally may have been fuelled by savvy investors responding to current macroeconomic events, including global monetary policies with zero interest rates, geopolitical tensions in Hong Kong, the falling yuan in China, and Trump’s disputes with Iran and Mexico.
If keen-eyed institutional investors are the driving force behind recent price action, they are not only less likely to choose altcoins over Bitcoin, they are unable to buy them even if they wanted. As Olszewicz suggests, thin order books and a lack of appropriate exchanges make the purchasing of small-cap coins difficult for big-ticket buyers. Recent data suggests that institutional investors are much more likely to invest in Bitcoin, and they’ve had a profitable 2019 as a result.
With growing interest in margin trading on platforms such as BitMEX, it’s likely that many of the retail traders who used to gamble on small-cap altcoins are now getting their fix by trading Bitcoin with leverage. As a result Binance is set to introduce margin trading soon. Secondly, this year’s IEO trend appears to be attracting the same money that used to buy altcoins. Several crypto analysts suggest that this combination of leverage and IEOs is impacting the flow of funds into altcoins that would be needed for ‘alt season’.
History rhymes, but doesn’t always repeat
Meanwhile, analyst Larry Cermak tweets that while Google searches for the largest western crypto asset exchanges — Binance, Coinbase, and Bitfinex — remain flat, there is a noticeable spike in Google searches for Asian exchanges including OKEx and Huobi. This suggests that just like in 2017, demand for Bitcoin is being driven by traders in the East. If that’s the case, it may only be a matter of time before altcoins once again claim their slice of the action. If Bitcoin is able to range and consolidate at the current price levels, the longer it ranges, the higher the chance of a mini altcoin boom becomes.