Identifying whether the market is in a bitcoin-cycle or an altcoin-cycle is useful because this insight shows where investors are allocating funds and how money could move next. Capital flows across the crypto space in a cyclical pattern – called the Crypto Money Flow (CMF) – which is driven by predictable investor behavior.
Initially, money flows from fiat into bitcoin when investors think that bitcoin is at its market bottom. This inflow increases bitcoin market dominance and kicks off the bitcoin cycle.
Once bitcoin gains in price, investors seek investment opportunities in alts. The price of alts tends to follow the price of bitcoin so the time lag between bitcoin and altcoin price movements lets investors protect holdings from a bitcoin crash by moving money into alts.
When alts peak in value, investors look to cash in on their gains, by moving capital back into bitcoin, fiat, or a fiat equivalent like stablecoins.
When bitcoin’s price crashes, the cycle starts all over again as investors seek to buy back bitcoin at the market bottom.
Knowing this, we can analyze and better understand market dominance.
In this graph, we can see our bitcoin dominance (red), altcoin dominance (dark blue), and stable coin dominance (green). The more capital that flows into bitcoin, the greater that market classes’ dominance becomes relative to the other market classes. Our dominances are: bitcoin (~41.5%), altcoin (~58.5%), stable coin (~9%). These numbers tell us that this week, more capital flowed into altcoins and stablecoins, while less capital flowing into bitcoin.
The red and blue shaded areas correspond to the Bitcoin-Altcoin Cycle, which identifies where the flow of capital across the crypto space is headed. We currently are in the Altcoin Cycle (blue), indicating that the majority of capital is flowing into altocoins.
So, a capital flows aross the crypto space, dominance changes and so do the market cycles.