On November 13, Bitcoin hit $92,000, and the total market value of cryptocurrencies reached $3.2 trillion, both breaking record highs. This round of carnival was only about Bitcoin and memes, while altcoins did not keep up with the rise at all.
There are two main reasons for the poor performance of altcoins:
The market is not buying into the token economic model of new projects with low MC and high FDV, and is instead investing in meme coins
No killer app this time
The following figure shows the market share of Bitcoin BTC.D, which is currently as high as 61%, the highest in three and a half years. Will BTC.D continue to rise? Can the above reasons for the downturn be solved in this cycle? Is there another altcoin season? Let's take a look.
The logic behind the rise of altcoins
We are currently in the early stages of a rate cut cycle, which means that the United States is releasing more liquidity to risk markets, and the capital transmission route is directional. From the very beginning, when traditional real estate prices rise, funds will overflow into the stock market. When the stock market reaches a certain market value, excess funds will flow into mainstream crypto assets (BTC/ETH/SOL). When mainstream crypto assets rise and meet market value requirements, funds will flow into the altcoin market with a smaller market value, thereby pushing up the prices of altcoins.
You can imagine that the above asset categories are all basins from large to small. When enough water is poured in to fill the upper basins, the water will naturally overflow into the smaller basins below. This capital flow path shows that capital will follow the characteristics of market liquidity and flow from relatively low-risk, large-volume assets to higher-risk, smaller-volume assets.
Therefore, the prerequisite for the rise of altcoins is that Bitcoin must rise first, until it can no longer rise, and funds are willing to flow out of Bitcoin and buy altcoins.
Current market cycle: on the eve of the outbreak of copycats
The following chart shows the total market value change of the crypto market excluding Bitcoin and Ethereum since this year (Total 3), which also represents whether the altcoins can explode or not. It can be seen that during the period from April to September this year, the overall altcoin market value showed a sharp downward trend, from 750 billion US dollars to 550 billion US dollars, but starting from September, the market value stopped falling and rebounded from 550 billion US dollars to the range of 600 billion to 650 billion US dollars, breaking the downward trend, which also means that we have passed the most depressed period of altcoins.
As mentioned above, BTC.D is currently close to 61%, which is the highest in this cycle and in the past three and a half years. According to past experience, the start of the altcoin season will first start with the rise of Bitcoin, which will suck the blood of altcoins, causing BTC.D to soar. When it rises to a certain level, BTC.D will fall from its high point to the 50%~55% range, and altcoins will make up for the rise. We are now in the cycle where BTC.D soars to its peak.
The current overall cryptocurrency market capitalization is approximately $3.2 trillion. If BTC.D drops from 61% to 50% while the total market capitalization remains unchanged, it is estimated that $320 billion of liquidity will be injected into the altcoin market, which also means that Total 2 (excluding Bitcoin market capitalization) will grow by 28%!
(*Calculation formula: [3.2T*(61-50%)] / [3.2T*(1-61%)] = 28%
Future prospects from a financing perspective: Focus on DeFi and applications
We have just judged the current market position from various market capitalization data, and the future outlook needs to refer to the current financing situation. Financing represents confidence in the crypto market in the next 6-12 months and is also a leading indicator of the development of altcoins in this cycle.
In the past three months, the amount of financing has been concentrated on infrastructure, with a total of US$870 million in financing. Infrastructure is a key track in the financing landscape of the crypto market. Since blockchain is still in its early stages of development, investors are still interested in building infrastructure to take the lead. The second and third tracks can be focused on, namely DeFi and others (usually referring to applications DApps). The former has a total financing amount of US$430 million, and the latter is US$310 million, which is far ahead of other tracks.
The essence of financing is to invest in early potential projects. While everyone is criticizing the sluggish price performance of altcoins, investment institutions are beginning to deploy early DeFi and application projects, and it is expected that a new round of outbreak will come in 2025.
