Altcoins: Understanding the Bearish Cycle (a.k.a. Roundtrip to the Moon and Back)

As per my previous article focusing on the history of the Altcoin Bubble we identified that we were currently at a critical juncture at the $50B support level. Either we would rally upwards or drop to levels below. The latter happened, as we all know, and it has been a quick dive to the $40B level over night.

At this stage the Altcoin sector IS in a bear market. We don't know for how long, but with double digit percentage drops on a daily basis on a number of key Altcoin, we're definitely looking for some ground beneath us to land on.

Now, if you're Holding it doesn't matter. Just relax and check in every few months to just see how things are going in general.

However, if you're trading in this space and want to make sense of the structure of this Bear Market and the triggers for this movement south, let's try to make sense of it and why it may have happened to improve our ability to spot similar events in the future.

(1) Huge Growth in the Altcoin Sector not entirely Supported by Fundamentals

The Altcoin space grew 29x from February 2017 through June 2017. This wasn't organic growth, or fundamentally driven in its entirety. It was due, in large part, to speculation. Speculation isn't a terrible thing, though, as it drives investment into a space, even during down cycles like this one.

Fundamentally speaking, there were a handful of coins that saw legitimate, fundamental reasons to appreciate in value. Did they deserve the appreciation they received in the marketplace within such a short period of time? Maybe, maybe not. With that said, let's highlight some of the coins that showed fundamental improvements:

Ethereum

• The Enterprise Ethereum Alliance was organized for enterprise MNCs to explore blockchain technology and its benefits through Ethereum.
• The use of Ethereum as a Platform has seen incredible growth across dozens of Altcoins
• Most ICOs accept only Bitcoin and Ether, highlighting its leadership position in the market

Dash

Incorporated into payment methods across multiple vendors online while Bitcoin was facing slow transaction speed due to its scaling issues.

Monero

Used frequently within the Dark Net Marketplaces as a key payment vehicle due to its privacy focus.

ZCash

• Also used on the Dark Net Marketplaces, like Monero, due to privacy features
• Partnership with JP Morgan to integrate its technology into the company's Blockchain platform was a tremendous credibility boost.

Smaller Altcoins Take a Roundtrip to the Moon and Back. Why?

Beyond this small list, can anyone explain why some of the newest coins breached $500M-$1B valuations? Think of favorites like Stratis (example above), Lisk, Golem, Augur, and the like.

Do they have anything to SHOW to prove they deserved to jump 10-80X in price within a matter of weeks?
For each of these projects, their respective teams are "fundamentally" sound BUT there hasn't been any activity to justify the high speculative prices at this stage. None at all.

That isn't to say that these projects aren't worthy of our investment, but we have to do a better job of understanding where they are along their project's life cycle. The names above and many others haven't even launched services yet. They have no real world use yet, and hence, are not driving any value at this stage.

Without fundamental values attached to these coins, their ride to the moon was momentary, and many of them have just come straight back down. Albeit, wherever their resting valuation lies, it will likely be well above where they started from.

(2) No Key Support Levels Built on the Way Up

On the way up, we never paused. We never retraced and corrected for that growth. Without having built support levels, there is very little but a deep dark abyss below us.

It isn't to say we'll fall all the way down to the bottom, but traders look for support levels like they are physical platforms that can be trusted to withstand a beating without caving. I'll go more into detail on how to think about Support levels in a future article.

Remember, the Altcoin space grew 29X from February through June. That's a lot of growth, some of which is and will be given back. And that's OK. We've seen this before in 2014. Everything goes through cycles, and we'll move past this one.

(3) Correlation to Bitcoin

Make no mistake, Bitcoin is King in Cryptoland and it determines the direction of the market.

Aside from having the largest share of the space, it is also the most "stable." When Bitcoin is gradually making its way upwards, the Altcoins follow. When it's working its way down, the Altcoins follow, and at an accelerated rate in either direction.

There is no better proof of the correlation of Bitcoin and the Altcoins than the fact that most Altcoins cannot be purchased without using Bitcoin.

Currently, Bitcoin is struggling to maintain buoyancy so the issues magnify for the other coins. A 10% dip in Bitcoin can result in 20-50% dips in the smaller Altcoins as can be seen above on today's charts taken from Poloniex.

Bitcoin Fork on August 1st

Due to the upcoming fork projected to take place on August 1st, there is a ton of uncertainty in the market. Investors HATE uncertainty so Bitcoin's price has been trading sideways and most recently broke a key support line to the downside.

The tremors of this uncertainty are being felt throughout the cryptospace, causing a double whammy on prices. Until we work our way through August 1st, we'll be seeing Bitcoin's uncertainly impacting the Altcoin market for the foreseeable future.

There is a lot more we'll explore in the coming days/weeks as we figure out where the bottom truly is and when we can begin our climb back up.

Final Words

With the above said, don't panic. Every market goes through cycles. Crypto is no different. Recovery will happen. It may take weeks, months, or a year+ but we'll be back moving towards the stars. The best thing to do is encapsulate the learnings we'll be going through during this period of time and use it as part of your game plan the next time, because there will be a next time, and a time after that, and after that.... you get the picture.

For now get yourself a nice cup of your favorite hot/cold beverage and enjoy some sun. And thank you for the time.