1/ Are “alts actually back”? The crypto market moves in well defined cycles, and we just completed the 3rd major one. Inspired by @fundstrat, below is the best metric I've seen to show it: the % of alts (top 5-100 by MCAP) increasing 200% over 90 days. 
2/ Howard Marks describes two ways to profit from markets: (1) buy more of what goes up and less of what goes down, and (2) cycle adjustment: building risk exposure when markets rise and reducing when they fall. Most people ignore the 2nd. Let’s dig in.
3/ Each cycle is more exaggerated than the previous. The first peaked at ~10%, the second >30%, and the last at ~70%. Absolutely crazy. 70% of alts went up 3x over 90 days. It was shooting fish in a barrel and way too overheated.
4/ Each time, the cycle peaks and sharply reverses back to near 0. The time on the way up and down is usually symmetrical. The most recent one just completed. A few questions: (1) What causes each cycle (2) are there predictive factors (3) What's next? Can we get a clue from BTC?
5/ Hopefully this doesn’t cause PTSD- let's dig into the most recent cycle w. BTC added. BTC went from $6009 on 11/11 to $19500 on 12/16. The % altcoins increasing 200% went from 3% to 71% on 1/13. BTC then fell to $5900 from the peak of $19.5k, retracing the full move
6/ BTC peaked about 34 days, or 27% into the cycle. This is also 54% of the way to the alt top on 1/13.
7/ After the BTC peak, alts took off for the next month. About 1 mo after the BTC peak, their MCAP (shown in green) fell from $187bn on 1/16 to $46bn on 4/7. Meanwhile, the % of alts increasing 200% fell and flatlined at 0%. The cycle played out: BTC —> Alts —> Overall pullback.
8/ What drives this? BTC runs the show as it’s the most liquid fiat on-ramp and most established asset. Before and during the start of each cycle, BTC price increases as more fiat comes into the space. As people are comfortable with BTC the new wealth trickles into riskier assets
9/ Going into each cycle, BTC dominance rises. As the 2nd cycle (04/17-09/17) progressed and turned into the next one, BTC rallied 240% more than an mcap weighted portfolio of the top 20 altcoins. After a large gain in BTC, you can see the peak as that money moved into alts
10/ Given most alt trading is against bitcoin and BTC is the best mechanism to bring fiat in, before alts can go on a major rally, it looks like *wealth first needs to be made* in BTC. If you look above, there is a lag between BTC and the alt cycle.First BTC gains, then alt gains
11/ Before last cycle, from 9/1 to BTC’s peak and the start of the massive altcoin gains, BTC dominance (shown in orange) rose from 45% to 65%.
12/ As risk tolerance and “house money” grows, the technologically weaker assets rise the most. B/c alts are more illiquid, each fiat purchase compounds price more. Sentiment gets out of control. The flippening is on the horizon. Its unsustainable and the *whole market* corrects
13/ How should we position ourselves now? Lets look at the previous, 4/1/2017 cycle to figure out. 1st, some similarities. During the cycle, BTC rose from $767 on 1/12 to $2910 on 6/11-a 267% increase. And prior to the cycle getting started BTC ran up from $572 to $1241 or 117%
14/ Before the cycle, BTC outperformed alts and dominance rose. The gains rebalanced into riskier altcoins that rallied even harder after. The wealth generated in BTC sows the seeds for the next alt coin rally. This looks almost identical to our recent cycle.
15/ Are alts back? Let’s look at the 2nd cycle again. As the cycle trended back towards 0, alts bottomed and even increased in USD terms. We're in a similar place now. The fall in USD terms ended then and it may have here too. But I wouldnt go chanting alt season just yet
16/ Traders need to keep in mind oppty cost. I’d argue that the big gains in alts — the super cycles where many rally 200%, can and will only happen after a large cap rally. There are still gains to be made in altcoins right now, but oppty cost may be high vs large caps.
17/ Before each of the last 2 cycles, BTC and large caps rallied 2-3x more than alts. Despite the altcoin usd rise, you would have done better by holding the larger caps. Pictures once again below.
18/ Before the next cycle, I’d look for the dominance of large caps to rise like it has before previous cycles. Prices are largely driven by liquidity. For another major super cycle to form there needs to be more fiat that comes into the system. Question is where that goes first?
19/ What to watch? The larger institutions who bring in new capital likely will do so through the more established assets. BTC dominance is up about 5% from the end of the last cycle on 3/1 from 40% to 42%. As this # changes it could be a good indicator of the market composition
20/ 1 good indicator to watch is ETH / BTC. Last cycle, ETH / BTC fell >50% as BTC rallied to highs. But on 12/11, 5 days before the BTC peak, it bottomed right before alts started to rally the most. ETH / BTC may be a good leading indicator to track the next major super cycle
21/ Disclosure: Long BTC
