Kyle Reidhead
GM PRO DOers!
đšBitcoin Dominance is rising!!
Are you paying attention?
If youâre new to this space and you donât know what this means, donât worry, we got you. đ
Iâm going to explain it below, along with sharing numerous other charts that compare it to other markets and past cycles to determine where we are in the current cycle. đ€·
Weâre talking about Bitcoin, Ethereum, and even the NFT space. This Eyes On Chain PRO Report is going to get you up to speed on exactly where we are heading next and help you understand when and how to allocate your capital. đ°
For starters, when Bitcoin Dominance rises, itâs time to pay attention. đ
It means a bull market is coming. Weâve seen this scenario play out before. Let me explainâŠ
If you read our PRO report from 2Â weeks ago about How To Invest In Application Tokens, then youâve seen our âflow of money in cryptoâ chart, which is common among past crypto cycles.
Bull markets in crypto in the past have always started with FIAT money flowing into Bitcoin. â»ïž
Once enough money flows into Bitcoin (the safest asset in crypto) and the bull market is underway, the money flows down the risk curve into other assets (application tokens and then potentially into NFTs).
Currently, the flows are beginning to pick up big time into Bitcoin, and the BTC Dominance is rising.
Below we can see that the last 3 weeks have seen massive inflows into cryptoâŠ
More specifically into BitcoinâŠ
And this is part of why Bitcoin Dominance is rising. đ But what is it?
Bitcoin Dominance = Bitcoinâs market capitalization as a % of the total market capitalization of all other cryptocurrencies combined.
And right now, Bitcoin makes around 50% of the total crypto market.
Itâs important to understand that on a long-term basis, this chart will continue to head downwards as the crypto ecosystem matures and more relevant and sustainable blockchains and applications are built out (ie. Ethereum, Solana, Arbitrum, Uniswap, etc.).
Above, you can see that Bitcoin Dominance was always at almost 100% until Ethereum launched.Â
Since the invention of Ethereum and smart contracts, the crypto ecosystem has grown significantly, and thus Bitcoin has become a smaller part of the entire ecosystem.
That said, Bitcoin is still the dominant crypto asset and the first choice for institutions looking to gain exposure into the crypto ecosystem.
In 2019, when investors realized crypto wasnât dead, they moved capital back into Bitcoin, increasing its dominance (see first pink circle below).Â
Then, as the bull market picked up in late 2020 Bitcoin dominance continued, until the bull market went full on, and $ETH and other application tokens took off. đ
Above, you can see Bitcoin dominance began to decrease sharply at the start of 2021, thatâs because capital started flowing into $ETH, and it did a 4x within 2 months. đ€Ż
Now, that seems like a lot, but check out the pink circle in the picture below.Â
That is the $ETH price vs the $BTC price during the same timeframe⊠Not bad.Â
But now look at the green circle beside it. Youâll see that $ETH did another 4x just a couple of months after it did a 4x to begin with! đ€Ż
Bitcoin, on the other hand, only went up about 30% during that same time period.
That was the big shift in capital from $BTC into $ETH, which brought Bitcoin dominance down to 40% and the crypto ecosystem into a multi-trillion dollar industry. đ€
I think that it is very likely weâll see a similar scenario play out in this next cycle too.Â
Of course, history doesnât repeat itself, but it often rhymes. đ¶
Itâs hard to say how high the Bitcoin dominance goes in this cycle, especially considering how developed the crypto ecosystem is.Â
My guess is it makes a lower high vs. last cycle. That means that the % you see on the BTCD chart wonât go over the highs from the last cycle.
However, itâs hard to know with opportunities like a spot BTC ETF on the horizon, which would boost the BTCD chart (most likely).
Regardless, it appears once again (weâve been saying this for months now) we are at the early stages of the next bull cycle. đ
Now, we canât make decisions based on just one metric, so letâs explore a few more charts to see what else is happening onchain.Â
Remember: Never rely on solely surface-level analysis. Weâve proved our point in our Solana Activity PRO report from last week. Always dive deeper to get the full picture. Thatâs what we do week in, week out at Web3 Academy. đ
Because we are in a Bitcoin-dominated market at the moment, itâs best to dive into what indicators we can find on Bitcoin to tell us where we are at in the market.
Firstly, notice that the total supply of $BTC held by long-term owners is at a record high (see gold line below).
This metric is a strong indicator of price appreciation in the future. đ
On the other hand, when this metric drops, it generally means we are reaching a âpeakâ of price appreciation and it's time to sell.
Secondly, there is a noticeable upward movement in the number of addresses holding at least 1 BTC, indicating an increase in the accumulation of Bitcoin. đ°
And finally, a great metric to look at in order to understand cycle dynamics is the % of Bitcoin addresses in profit.Â
If the number of profitable addresses drops below 50% (represented by the green section), this typically marks the trough of a bear market. đ»
When the indicator is in the red zone (above 92%), it generally suggests the peak of a bull market. đ
As you can see above, we touched the green section at the beginning of this year and still have plenty of room to grow until we reach the red.
Though early January would have been the best time to start accumulating (which I was screaming to all PRO members that itâs time to start buying at that time), it appears to still be early days in this cycle and a great time to be accumulating.
As highlighted in our previous PRO reports, I don't believe it's time yet to commit a substantial amount of capital into application tokens. However, it seems appropriate (and Iâve said this for months) to accumulate large caps like $BTC and $ETH.
Always remember the flow of money in crypto...
Bitcoin (and potentially Ethereum) should continue to hold short-term dominance over most application tokens and definitely NFTs for the moment.
Once we have a serious run up in $BTC, $ETH will likely have its moment. When will that be?
My instinct tells me that IF a Bitcoin ETF is approved (which has a high % of happening in August or September), it'll only be a matter of weeks before an Ethereum ETF is filed. That's when $ETH will start moving â and the rest of the ecosystem will follow in a frenzy.
The timing of this is still up in the air as it depends on approvals of the ETF, regulatory clarity, macroeconomics, and more. At this point, I donât have a strong thesis on when applications will have their moment, though I think itâs still months away (at least).
But what about NFTs? What will happen to our beloved JPEGs? (It doesnât look great at the moment).
The chart above is the âNFT Blue Chip Indexâ (a combination of the top NFTs), and it appears to be on a downward trajectory towards zero. đŹ
But is that really going to happen? Or will NFTs rise from the dead? Or was it all just a hype cycle that had no substance to it from the beginning?
Stay tuned for next week's PRO report. We plan to put together a thorough breakdown on the state & future of the NFT market, just for you!
Before we wrap up here, we just wanted to welcome all of our new PRO members who joined us in the past week.
We are thrilled to see so many PRO members joining us as we prepare to navigate the bull market. Our mission at Web3 Academy, especially within Web3 Academy PRO, is to guide you in successful investing and building within web3.
Our focus is on helping you steer clear of hype cycles. We are all too aware that itâs only a matter of time until the hype phase of the bull market is upon us, bringing with it an array of new paradigms built on false promises.
During these times, numerous investors suffer significant losses and builders build products for fads that donât have staying power. Despite amassing substantial early profits or gaining traction with a business (which you will achieve), they end up losing everything during the hype cycles.
The team at Web3 Academy is no stranger to hype cycles either:
I've lost big in games like Axie Infinity.
Jay experienced heavy losses in NFTs, purchasing a Moonbird for $25k a year ago, which now is worth just $3.5k.
Raul lost a significant amount in dubious low cap tokens that were only available on Uniswap.
So, we've all been there and we've all been caught in the hype cycle. Our current mission is to avoid it ourselves and guide you away from it too.
In closing, we are excited to have you with us and hope you stay with us for the journey ahead. Our lives will look vastly different a few years from now, and we will have only ourselves to thank for the transformation.
Both you and I have stuck around in this space when others have not. And we will be here to reap the rewards when the time comes. And it will come.
Thanks for reading. And remember, you're strong, youâre powerful, youâre alpha! â€ïž
See you soon. âïž
Kyle Reidhead
Founder of Web3 Academy and Impact3
Find him on Twitter
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Disclaimer: This article is for informational purposes only and not financial advice. Conduct your own research and consult a financial advisor before making investment decisions or taking any action based on the content.
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