Summary Chances are high that the Bitcoin dominance has either already peaked for this cycle or will peak in November or December 2024. My conviction is high that 2025 will be a year of falling Bitcoin dominance. In terms of financial conditions, there are striking similarities to previous crypto cycles, raising the possibility of a hard landing. The opportunity cost of missing the post-halving-year rally is too high to prepare for the pessimistic scenario. Investors are better off maintaining their bitcoin position. I expect altcoins to outperform bitcoin in 2025, but in the long run, Bitcoin remains the best-performing crypto asset. Bitcoin Hits New All-time-high After Midcycle Correction Since my last article on August 7th, Bitcoin ( BTC-USD ) seems to have completed its midcycle correction rather quickly and is now approaching the $80,000 mark. Altcoins are still underperforming. Ethereum ( ETH-USD ) is still well below the past all-time high at ~ $3,000. Current market dynamics are nothing new to seasoned crypto investors, as the cycle is very much in line with previous ones. The times of boredom are long gone. Chances are high for another potential mania phase in 2025. Data by YCharts Bitcoin dominance continued to rise above 60%, as I expected, in my last article. I believe the chances are high that the Bitcoin dominance has either already peaked for this cycle or will peak in November or December 2024. My conviction is high that 2025 will be a year of falling Bitcoin dominance after it rose for three years straight. Furthermore, there are striking similarities to previous financial cycles in terms of financial conditions. While these similarities indicate money printing—inherently bullish for crypto—they also increase the chances of an economic soft or even hard landing before the skies are clear. I argue that betting on a financial market meltdown may make sense at first glance. However, the opportunity cost of missing out on the post-halving-year rally is too great to reflect this view in one's portfolio. Investors are better off maintaining their Bitcoin position, and if their personal risk tolerance allows, increasing their exposure to Altcoins Again, for the sake of transparency—these are my current positions in my crypto portfolio. Positioning of Author (BTCUSD) (TradingView) I am adding ETH for the first time as Altcoin positions will become more important for my positioning for the last two months of this year and for 2025: Positioning of Author (ETHUSD) (TradingView) Mania Speculation Is A Long Way Off Although Bitcoin has hit new all-time highs and the great boredom of 2022 & 2023 is certainly over, I don't think we have seen any speculative mania yet. This is perfectly in line with prior halving-years. The number of unique addresses that were active has dropped in early 2024 and is just starting to turn around from lower levels. The data is polluted by the Bitcoin-ETFs launched earlier this year. However, it does show that the On-Chain movement remains muted. Off-Chain data, similar to the Social Risk Metric , shows similar results. Interest is picking up, but nowhere near the mania-phases that preceded the post-halving years of 2017 and 2021. The data suggests that speculation levels and retail interest will begin to turn around from multi-year weakness in the second half of this halving-year 2024—similar to the prior halving years of 2016 and 2020. Cycle Low Multiple (BTCUSD) (charts.bitbo.io) The current cycle (ERA 4) is pretty much in line with the last two comparable cycles of Bitcoin (ERA 2 and 3). The Cycle-Low-Multiple clearly shows diminishing returns from cycle to cycle which is to be expected for an asset class that is growing in size. In the past cycles mania phases typically began after passing the previous all-time high at ~ 200 days after the halving. They peaked just one year after they started, roughly around 540 days after the halving. If the current cycle were to follow the previous ones, the post-halving year of 2025 should continue to be positive for Crypto assets overall. Interestingly, the midcycle top of the last cycle (ERA 3—green) occurred 300 days before the halving after capitulating in March 2020. The current midcycle top happened much later at 50 days before the halving, similar to the ERA 2 cycle. But these are all nuances. The overarching message is the following: The current cycle is playing out very much in line with the prior cycle—disregarding all other (relevant) metrics discussed below. If history continues like the last 12 years, we have a positive post-halving year ahead of us. The Peak Of Bitcoin Dominance For This Cycle Other significant metrics show similarities too. Correspondingly to prior cycles, the multi-year bull market of Bitcoin Dominance has reached ~ 60%. Excluding Stablecoins Bitcoin Dominance has even reached ~65%. Similar to the stock market where lower risk / higher market cap companies have outperformed over the past three years, Bitcoin has significantly outperformed the average Altcoin throughout the mid-cycle. BTCUSD (orange) & BTC.D (blue) (TradingView) During the mania phases of 2017 and 2021 the Bitcoin dominance plummeted in a single year of speculative mania only to rise steadily for three consecutive years, until the next post-halving year occurred. I believe there are two main reasons for this recurring pattern: The halving and financial conditions. The mechanics of the halving put upward pressure on the price of Bitcoin because of the reduced supply from miners. A year later, with Bitcoin already at new all-time highs, retail steps in to buy the riskier Altcoins, only to get crushed the following three years. Speculation thrives when borrowing money is cheap, and it dries out when money gets tight. The riskier Altcoins underperform, when central banks tighten financial conditions, e.g. with quantitative tightening and restrictive interest rates—hence Bitcoin dominance rises. Typically, after financial conditions have been restrictive for a long-enough period, the market gives in and consolidates. Due to lower asset prices—and/or inorganic monetary easing by central banks—Bitcoin dominance collapses and the cycle begins anew. Of course, the price action of Bitcoin is multifactorial. However, the halving cycle and the financial conditions cycle are positively aligned for the following year of 2025. On the one hand, the halving took place in April 2024, and on the other, interest rates are already falling, and global central banks are discussing monetary easing to support the economy. The perfect breeding ground for a broad-based speculation mania phase, typical of a post-halving year, which would correspond to the halving cycle, falling Bitcoin dominance and easier financial conditions going forward. BTCUSD (orange) & FEDFUNDS (blue) (TradingView) Let's Not Forget The Turbulences Of The Halving-year 2020 While the first few rate cuts of 2019 indicated financial easing, the real stimulus came only after March 2020, when asset prices plunged, the world was in a Covid panic and there was sufficient reason to ease monetary policy significantly—e.g. to finance government handouts. During this time, Bitcoin fell by ~70% and Altcoins declined a bit more on average. Only after the capitulation did the real bull market begin. I believe there stands a good chance of something similar happening, catching many investors off guard. After the prolonged drawdown of 2022, sentiment was incredibly bearish heading into 2023. Despite (or rather because of) the market negativity, assets continued to rally in a near straight line to date, putting in new all-time highs consistently. At the time, talk of an inverted yield curve was the popular bearish narrative. However, after many months of recurring new all-time highs, these arguments have vanished just when they really mattered. It is the uninversion of the yield curve that almost has a near-perfect track record of predicting recessions and huge market drawdowns. SPX (grey) & US02Y/US10Y Spread (blue) (TradingView) Just when it matters most, investors turn their heads to their green screens full of new all-time highs—typical market behaviour. Implications & Positioning Ideas Should investors hedge their crypto portfolio against the scenario of a (hard/soft) landing mentioned above? The answer depends on the investment style, but probably not. The question that every investor needs to ask is the following: Am I willing to sacrifice returns in the crypto asset space during a post-halving year for the possibility of buying later at a lower price if a recession occurs before the bull run? The opportunity cost seems too high to me. The returns of the previous bull runs into the post-halving year have been too great to miss out on. The current market dynamics of falling interest rates, Central Bank easing, peaking Bitcoin dominance, and muted but rising positive sentiment align perfectly with the halving narrative and my experience in 2020. If investors want to hedge some of their risk, a position in leveraged long-term government bonds (e.g. TLT) seems like an acceptable strategy. In the event of a market crash, long-term government bond yields are likely to fall, resulting in greater purchasing power in times of low asset valuation. The risk of rising interest rates due to great fiscal spending and therefore elevated inflation remains. However, long-term government bond yields (and yields in general) appear to have topped out for this market cycle. Personally, I'm toying with the idea of such a hedge against a risky altcoin position, but I haven't implemented it yet. Partly because I don't want to overcomplicate things, partly because of the dangers of elevated inflation & interest rates for such a trade. The Time For Altcoins Is Coming Over the last three years, Bitcoin has been by far the best asset in the crypto space on a risk/reward basis. Altcoins have significantly underperformed, and the Bitcoin maximalist idea has gained a huge following—partly for fundamental reasons, partly because of the stunning effect of green candles. I believe the tide will turn in 2025. The post-halving year could be one of those years when the average altcoin outperforms bitcoin. Make no mistake: I am not arguing that Altcoins will outperform durably over the course of several years. If your investing style is buy & hold, Altcoins don't make sense. They are oscillators to Bitcoin (at best) and tend to outperform only for short periods of time. Additionally, Altcoins are at risk to be replaced by other Altcoins, they are centralized most of the time and vulnerable to human manipulation—all of which Bitcoin is not. However, they typically outperform by a wide margin in the years following a halving—when all the circumstances are right. During a mania phase, investors should remember: Over the long term, there is no better performing asset in the crypto space than Bitcoin. Never marry an altcoin.
