Sell-offs are nothing new in crypto. They are necessary and can even be seen as healthy. But when looking at widespread sell-offs in the past, altcoins do not typically lead the rebounds. Historically, money usually flows into Bitcoin (BTC 4.29%), and then eventually altcoins follow suit.
To get a glimpse at the current market conditions, investors have used a metric known as Bitcoin Dominance. This metric is a ratio between the market cap of Bitcoin and the total of all other cryptocurrencies.
Image source: Getty Images.
When decentralized finance (DeFi) apps and non-fungible tokens (NFTs) were taking off, known as altseason, many investors flocked to these up-and-coming innovations. This sends the Bitcoin Dominance down as more money heads for altcoins and DeFi applications. In the most recent altseason, Bitcoin Dominance went as low as 39%.
Although defining altseasons is somewhat subjective, there are some indicators that show the last altseason ran from the beginning of January 2021 through June 2021. During that stretch, the altcoin market cap skyrocketed from only about $225 billion to nearly $1.5 trillion. Bitcoin Dominance fell sharply in the same time frame but has since found a bottom.
More recently, momentum has been building for Bitcoin. Money is leaving altcoins and flowing into the world's most valuable cryptocurrency. Since the recent sell-off, Bitcoin Dominance has risen in recent weeks as investors look for less risky assets. Currently, Bitcoin Dominance sits at 44%. Typically the thinking goes that when Bitcoin Dominance rises, altcoin season is over.
Is the bottom near?
In addition to Bitcoin Dominance, there are a handful of other indicators that point to Bitcoin shaping up for a solid June and even a longer time frame.
One indicator is known as the realized price. It is the total value of all Bitcoins at the price that they were most recently bought, divided by the amount of Bitcoin that is in circulation. Realized price is essentially the average price at which all investors bought their Bitcoin, or the average cost basis for all the Bitcoin on the market.
The realized price of Bitcoin has served as a consistent support line since the token was created. History shows that as the actual price gets closer to the realized price, investors tend to buy more because they don't want to sell below the value they bought at.
The market price of Bitcoin has fallen under the realized price only three times in history. This retreat has varied in length during those three occasions, but when the actual price falls below the realized price, it typically signals a bottom. Currently, Bitcoin's actual price is around $30,400. The realized price is just under $25,000. Bitcoin could fall more, but there is substantial support around the realized price.
Likely the most reliable and simple chart to provide some context on Bitcoin's current position is the 200-week moving average (WMA). Bitcoin has gone below the 200 WMA line only twice in history, and only briefly. It has never stayed below the 200 WMA for more than a month.
Bitcoin's 200 WMA is about $22,000 as of now. With the actual price around $29,000, it could certainly go lower or even trade sideways for a while, but the worst of the damage is likely over.
None of these metrics can be relied upon with complete certainty but they can be used as a guide to show how Bitcoin has reacted in similar situations. The cryptocurrency has far to go before it can return to all-time highs. However, it seems that most of the damage is over in the short term. If Bitcoin Dominance continues to rise, then June might be a great month for investors in the original cryptocurrency.
