According to PANews, bull markets often stagnate during periods of excessive optimism, only resuming after the speculative bubble has been cleared. This observation was reported by CoinDesk. The cryptocurrency speculation index of Capriole Investment indicates that the widespread speculative excess of the first quarter has dissipated, suggesting that Bitcoin may welcome a new round of bull market price increases. The speculation index measures the percentage of altcoins with a 90-day return rate higher than Bitcoin, which is currently stable at less than 10%, far lower than the peak of nearly 60% in January. As the largest cryptocurrency by market value, Bitcoin reached a new high of over $70,000 in the first quarter, then fell back to $58,000.
CoinGecko shows that there are over 14,800 types of altcoins as of the writing of this article. Most of them have poor liquidity and it is difficult to prove their use cases. Therefore, altcoins are often seen as speculative tools, their trading volume closely related to Google Trends, an indicator of retail investor interest. The excess performance of altcoins relative to Bitcoin is seen as a sign of speculative frenzy. The bursting of the speculative bubble plays a corrective role, helping asset prices to realign with fundamentals and suppress excessive speculation. Therefore, they lay the foundation for a healthier long-term market environment.
This is exactly the case in the cryptocurrency market. Since 2019, situations where the speculation index is below 10% coincide with the start of Bitcoin's sharp rise, as observed in the first half of 2019, the end of 2020, and the second half of 2023.