Market Analysis - Macro & Crypto (7 March)

Markets Update - Macro Analysis

Most risk assets have hit new all-time highs (ATHs) or are near them. All major S&P indices, including the Equal Weight, S&P 400, S&P 500, Dow Jones, and Nasdaq 100, have made new ATHs. #Bitcoin and #Gold have also made new ATHs. However, things look a little odd. They appear extremely overbought after one of the biggest rallies we've ever seen in risk assets - one of the fastest and strongest since the bottom in October 2023.

#Inflation is coming down substantially and could keep decreasing, while governments globally are spending like crazy. Even though the US government keeps borrowing and spending, bond yields are dropping (bonds are going higher). With an extremely resilient US economy, despite a clear global slowdown and sluggish post-COVID growth elsewhere, the bull market in risk assets could continue.

On one hand, it feels like we're nearing an important correction, and on the other, it feels like a "melt-up" is about to begin. Everything is substantially overbought, yet most parabolic runs start from such overbought levels. The Russell 2000 and the Equal Weight S&P 500 are about to have major breakouts, while Gold is breaking after a 3.5-year-long quadruple top.

Although sentiment seems bullish, positioning and actual sentiment metrics don't indicate craziness yet. Before the next major correction or bear market, stocks could rise another 20-30%, while gold could rally up to $2500-3000 before a significant correction. Yet a small correction is possible here or when the S&P 500 reaches 5300 and Gold $2350.

Markets Update - Crypto Analysis

But what about crypto? Are we in an alt season, or not yet? The market has surpassed Bitcoin's previous ATH but hasn't managed to close above it yet. A breakout could be imminent, as Tuesday's correction was probably enough for the market to reset and rally higher again. However, that correction, coupled with extreme overbought conditions, might indicate the market needs extra time and potentially another 20-25% correction before really breaking above its ATHs.

We've been in unfamiliar territory since June-October 2023, where the real Bitcoin dominance (excluding stablecoins) has been moving sideways. Depending on one's perspective, it could be seen as down since peaking in October 2023, implying an ongoing alt season with several altcoin rallies. We've seen alternating Bitcoin and Altcoin rallies, but overall, alts have kept up with Bitcoin, which is surprising. In previous cycles, altcoin dominance got crushed every time Bitcoin rallied towards its ATHs. Last cycle, we saw Bitcoin rally 50% above its ATHs until alts bottomed against it.

We're currently seeing massive strength primarily from #ETH and specific sectors like #memecoins, #AI, #DePIN, and #Gaming, while the majority underperforms Bitcoin. It's potentially 20% of the market having most gains, while the rest lag Bitcoin. Yet, ETH's unique strength might continue despite being more overbought than BTC on a relative basis.

Although hard to call this an alt season, a potential #Ethereum season is in play. #ETHBTC has formed three higher lows and has been ranging for months, despite Bitcoin making new ATHs. Ethereum's outperformance continued after the recent correction. This is incredible, especially considering flows into Bitcoin ETFs. Ethereum's demand is fueled by Ethena (a stablecoin protocol), DeFi, restaking/staking, fee burning, ETF speculation, exchanges winning against the SEC, and the upcoming EIP-4844 upgrade.

In 2017, the altcoin season began when Bitcoin hit new ATHs, plus other catalysts. In 2020, there were no specific catalysts, and it started 50% above Bitcoin's previous ATH. This time, is it possible the altcoin season began below Bitcoin's ATH? Totally possible. Ethereum has made three higher lows and has a triple top pattern. Too many fundamentals support Ethereum, as described above.

In 2017, the altcoin season was fueled by China banning leverage, the ETF rejection, and the #BlockSize wars (fears of a fork like Bitcoin Cash #bch). This time, can altcoins outperform Bitcoin through adoption alone, even when they're still relatively expensive? For now, it looks like it. Altcoins are outperforming, or performing as well as, Bitcoin, even though it hasn't closed above its ATH yet. This is massive and unexpected compared to previous cycles.

A key unpredictability factor is events like the US selling Bitcoin, Mt Gox distributions, the next Bitcoin halving's impact, governments and corporations buying, #GBTC selling, #Ordinals , AI development, central bank liquidity, and a potential Ethereum #ETF - all could influence the market unexpectedly. Therefore, it's harder to say when and by how much alts could outperform Bitcoin.

Finally, the alt season might have already started months ago. Despite the Bitcoin ETF and Bitcoin dominance peaking at much lower levels compared to the last cycle, it's possible this alt season started when Bitcoin was way below its ATHs. The growth in crypto assets is tremendous, and we're seeing more and more real use cases and developments, from regulation to technology. Every cycle differs from the previous ones, so it's possible this time the alt season started early, although 'silently'. It's either that or Bitcoin is about to go on a monster rally that could destroy ALTBTC pairs. We could see Bitcoin dominate everything with tremendous flows from big Traditional Finance players, making BTC outperform until it reaches $100k or even $150k, who knows?