Crypto is entering Phase 2 of the bull run
We wanted to take a moment to share our thoughts on the market’s pace so far this year. After a rapid run-up at the start of the year, digital asset prices retreated in Q2. Every period of strong performance is followed by a period of consolidation. Inevitably, during this period, some people throw in the towel and start calling for the end of the cycle, especially in asset classes that are more volatile than most.
Following the broad market rally in Q1, the top 400 tokens fell an average of 45% in Q2 and were down 12% year-over-year as of June 30.
Our thesis is that protocol tokens with product-market fit and strong unit economics that generate real revenue will perform best in this cycle. We have previously described how these tokens outperform in Phase 2 of the bull cycle when market breadth broadens from major tokens.
Phase 1 is the early stages of a rally, when Bitcoin tends to outperform the rest of the market. Phase 2 is the late stages, when altcoins tend to outperform the rest of the market.
We believe we are entering Phase 2. Historically, Bitcoin's dominance has increased by 15-20 percentage points in the first phase of each previous cycle, and at this stage of the cycle, it has increased by 17 percentage points.
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