I smell the stench of small cap or ‘alt coin’ hatred, an emotion all too familiar to me. When the Cryptocurrency service started on Elliott Wave Trader in August 2017, Bitcoin was emerging out of the June to July correction, which was relative short in time, but corrected roughly 40%. Alt coins, and specifically micro caps began a correction at the same time but took much longer to emerge from the correction. Some continued a downward trend until much later in fall. During that time, many subscribers were upset both at the lack of upward movement for their large alt positions, and that I was not tracking these alts versus Bitcoin. My counts were bullish in USD but were outperformed handily in BTC. I warned at that time, actually many times that having more than 10% of your holdings in speculative coins was a recipe for frustration.
Then, by late fall, when this frustrated sentiment reached a crescendo, highlighted by nasty comments on the board, the alt run started, and most charts topped 8 weeks later. The move was on, and then gone...If you examine the Bitcoin dominance chart you’ll note the downward moves of this chart, those times when alt coins are outperforming Bitcoin are quick but intense. Some who were so frustrated, I know sold their positons, and so didn't participate in the even they so intently waited for, to the point of exasperation. We know statistically, that when the crypto market is in a bull phase, Bitcoin over that period is the worst performer. It just carries less beta. But experience tells me it is the first to go, and owns the the ‘first phase’ of any over.
I’ve attached the Bitcoin Domimance Chart, and noted these periods of alt outperformance on the chart in pink. They are short, and quick.
You, as a trader / investor have to decide how you are going to deal with these moves.
Are you nimble and smart enough to know EXACTLY when these moves are going to commence? If so, obviously, you are going to avoid them until that time. To a degree, I fall into this camp. Or, maybe I think I’m smarter than I actually am. That said, as I did in fall of 2017, I have been trading Bitcoin and Ether largely from the December low until now.
Or, do you understand the risk in these speculative and just find it more healthy to stay away from these alt coins? Honestly, this is a very reasonable position.
Or, do you consider the alt coin risk worth taking, but don’t trust yourself to board the train just in time. Whether you know it or not, if in this camp, you are defining yourself as a positional trader. So you would scale slowly into alts with profit from large cap trading. And, if a positional trader, you are willing to take heat for a time.
There is one perspective I consider unreasonable, and to be honest, one where you play the victim of market sentiment. This is where one is over positioned in alts to date, and are growing fatigued of those positions and are tempted to vacate. We still have many bullish charts in alts vs. USD. However, we just have BTC extending beyond our early expectations. The latter fact could not reasonably be expected prior. There is so far, no reason to expect a breakdown in alt coins. History also suggests that if this new bull is for real, they will run.
I doubt or at least partially doubt applying Elliott Wave to the dominance chart is fully useful, as it is only partly based on market moves. The second component driving this chart is alt coin project growth. If we consider that Bitcoin is static in future supply and supply is growing slower with each halving, and alt coin projects can be birthed with impunity, this chart should be in a constant downward trend. If we do apply Elliott Wave theory, again cautiously, then we should see impulsive 5 waves to the downside, with three wave retraces. So, if we do apply that this chart, we are coming close to the 1.382 extension at 61.29. This is the typical upper extent of a corrective move in any market.
Further, as you know from my charts most of my alt coins, as measured by USD, are sitting in key support off our December low. A few coins, I have labeled not strong have not held, but many have, like BCH, LTC, EOS, and ADA.
So, will an alt coin party start? As Bitcoin, possibly extending into the $7K region, as long as $4565 holds, spark a last minute alt coin rally before wave 2 ensues. I do not know for sure. However, I do smell the stench of alt hatred. This sort of sentiment often turn markets, and we know from EW where turns are likely in price action. It would seem to be the logical outcome here based on my experience. But now is the time where price must prove.