Bitcoin Gets a Bull Flag While Ether Gets the Ol’ Head and Shoulders and Alts Generally Slump
Bitcoin broke out of the $6k range it had been trading in, and that helped spur on a market wide rally. However, many alts (with a few notable exceptions) have steadily lost ground since. This is well illustrated by comparing Bitcoin’s chart to Ether’s chart over the past few days (see image above).
Bitcoin is forming a sort of bull flag, Ether a bearish head and shoulders. Alts have preformed more like Ether (after a solid run a few days back), and the result is most alts are losing BTC value despite some alts having previously made impressive runs. That makes this Bitcoin rally bittersweet for anyone aside from shorts and Bitcoin maximalists.
The good and bad news is that this sort of pattern has played out before. In long stretches of the second half of 2017 for example most alts would exaggerate Bitcoin’s losses, sometimes not react to its gains, and then make quick jumps once in a while (generally when BTC made real headway). The result was a gradual rise in USD prices for alts, but a general decline in BTC prices. That is essentially “the bad news,” the good news is only that it all resolved into an epic alt run in December 2017 – January 2018 which made up for all of it.
Luckily, history doesn’t have to repeat like it did in 2017 (creating 6 months of drag for alts), it could repeat like it did in early November where alts seemed dead right before they started on one of their biggest runs in history. Unfortunately, I don’t have a crystal ball, so I have no way to know.
TIP: See the different types of relationships alts and Bitcoin can have. Every investor’s favorite is the one where they all go up together, but each type presents different opportunities (especially for those who trade in and of alts or short). See also an article from October 19th 2017 where I lament about this same sort of cycle (In those times there was more pain to come for alt holders, but two months later extreme rewards would start kicking in for those who averaged in, bought at the right time, or stood their ground)… keep this in mind.
NOTE: On the daily charts in USD most major alts (BCH, ETH, LTC, XRP, etc) are all forming bull flags that sit above their 26 day EMAs with a golden cross on the 12 and 26 about to form! So no reason to fret from a zoomed out perspective, especially if BTC can hold up. Only when we zoom in does a little sadness appear. From a zoomed out perspective, there is actually even reason to be bullish. Notice how the price action is sitting above the 12 AND 26 on the daily, that has been a rarity in 2018. When it has occurred in 2018 it has generally signaled an uptrend (not every time, just enough times to note)!
NOTE: To balance the above, especially with those “flags” all starting to look like ETH as BTC struggles, one should be aware of what these coins look like in BTC prices. The chart of BCH below illustrates what the alt market in general looks like right now. In short, although there is no rule that says this has to happen, many alts have a little more room to go down to test previous bottoms in BTC prices.
Understanding the Rotation in Cryptocurrency on a Macro and Micro Scale
I can’t always make sense out of why the market does what it does, but it is more than common for what cryptos are doing well to rotate (it can change day to day, or week to week, or month to month; it is like complex layers of cycles).
For example, there was a while there in January when Ethereum was outpacing all top coins, before that XRP and XLM were doing very well, sometimes minor alts do well, sometimes privacy coins do well, sometimes everyone is stoked on TRON, VERGE, EOS, or NEO, etc.
Then, once in a while, in some glorious moments of holders, the whole market runs together like in April (which is amazing for fiat prices, but doesn’t present as good of opportunities in BTC prices)!
And of course, sometimes (and frankly often historically speaking) Bitcoin is the star.
Bitcoin Cash is not taking over Bitcoin, NEO isn’t replacing Ethereum, etc. It is simpler than that, what coin is doing well rotates, and people for whatever reason (natural or not) get really stoked on that coin and start making grand claims…. and while that coin is often Bitcoin, like it is right now, it isn’t always that….
… but it is that now, and that is the point here.
Back in September 2017 Bitcoin did a solo run while alts lost BTC value against it. Bitcoin was “in rotation” in September – October (if not November – December as well).
That was bittersweet in the moment, since it was good for crypto as a whole… but bad for alts at the time. However, bittersweet aside, eventually it was amazing for alts months later when that Bitcoin resolved into one of the biggest alt runs in history. Those who had held Bitcoin and swapped into alts after the “futures pump” in November were rewarded 10 fold plus (and those who had held since the summer were generally rewarded as well; especially in terms of fiat prices).
However, despite the eventual happy ending, it was not ideal for those invested in altcoins in the moment. Instead it had me making header images like this:In those days [Sept – Nov specifically] alts would run with Bitcoin when it went up, matching its gains or underperforming a bit, and then they would retrace harder than Bitcoin. This led to a slow bleed in BTC prices for alts.
I’m telling you, you you haven’t lived until you have sat on $300 Ether for months while you watched Bitcoin go to $10k! Only thing that will strengthen your resolve more than that is watching the light speed run to $1,400 a month or two later as Bitcoin pulls back and people declare Ether the new Bitcoin. It blows your mind a bit in a few different ways, but assuming you were positioned correctly, it also fattens your wallet… and that part is nice!
Many traders in the market won’t remember each phase of the last cycle, because they came into the game after the last time the phase had completed… but I can tell you, it was not great in the moment (instead it created great opportunity in key moments and eventually).
All that said, a two day period is not a trend. What has occurred over the past two days could be an early warning, but it tells us very little about the future.
The way I see it, what is happening now could be a sign of a few things, here are some ideas of what could be occurring (any, all, or none of these could be the case):
- Alts are foretelling what is about to happen to Bitcoin… a drop. That drop would likely drag alts down more… which means this jump really only favored BTC holders and traders.
- People are hoping that big Bitcoin news is announced, like a new ETF, they assume that if Bitcoin breaks out next time it could be the only coin that runs. So a lot of money is flowing out of alts and into Bitcoin and that is bringing fiat prices of alts down.
- The rotation represents the will of big players. They focus on certain baskets of coins at a time, this allows them to trade into coins that are being repressed (let Bitcoin run, but hold back Ethereum, and then after Bitcoin runs you can trade into Ethereum from Bitcoin instead of into cash… this results in a constant stream of money).
- The big players have been around long enough to understand the order and early tells in a rotation, they already know what rotation we are in and have already switched into BTC mode.
- The bears are actually still out for blood, they have not finished building their positions, they really aren’t ready for crypto to run. Bitcoin, XLM, ADA, and a few others broke out for a range of reasons, so the bears backed off those and let the market run to focus on shorting and/or accumulating the coins they knew didn’t have as much oomph behind them.
- All attention is on Bitcoin, if Bitcoin can break through resistance it should lift the rest of the market up eventually, thus the market is relaxing their support of most alts to focus on Bitcoin. Simply put, resources are being committed to Bitcoin.
- BTC charts are irrelevant and all eyes are on fiat prices. In terms of fiat prices alts are forming attractive formations on the daily time frame and the pullback would be expect before a breakout (as it sets up for a nice run past key resistance, cools off RSI, and allows a golden cross to form on the 12 and 26).
Whatever the case moving forward, for the moment we are seeing one of those markets where only one top coin is favored. This is hardly the first time that one of the top coins has been bullish while the rest of the market was in a short term or long term bear trend. It is one of the moods that can be expected in crypto (either as a minor cycle that lasts days, or an overarching cycle that last months).
Unfortunately, it kind of “sucks” in the moment for anyone holding alts. As, while I’ll be the first to average into some .062 ETH given that it was .12 at the high… I also know that .02 is on the table if the winds blow that direction.. because I have seen that too (more than once, in 2017 alone, never-mind the longer history). And that is the problem with those stretches of only one coin running, you can do TA, but even those things that look like good deals can end up being pretty raw in the moment (especially in a moment like this where TA is giving mixed messages, bullish short term on daily, bearish on 1hr, bullish on full chart since 2010, bearish in 2018, etc).
That said, even if in the moment the vibe is a little bit toward “I should have just went all in on Bitcoin”… when the next cycle comes into play the refrain will likely be “I should have bought this” or “I should have bought that.”
The reality is all coins are likely to run at some point if a legit bull trend occurs, and in the meantime it is better to see a rotation of coins instead of just a bear market that is resulting in all coins being down.
Anyway, no one can predict the future, but all crypto investors can position themselves in a way that they are pumped when one of the top coins runs, and not devastated when only one of the top coins run. I do that by diversifying and averaging in and out of positions (often in crypto to crypto trades). Others will do it there own way. Keep in mind though, if you didn’t get it right this time, there is likely to be countless other times as long as crypto is a thing, because crypto really seems to love these complex overarching repeating patterns.
NOTE: To be super clear, the market could rally and all coins could run any moment now. I’m only commenting on the state of July 18 – 19 2018 to help illustrate how the crypto rotation works and to generally comment on what I see. If I could predict long bearish stretches and know what coin would do well in that cycle… I would probably be drinking virgin daiquiris in my lambo and not writing articles on my computer.