Glassnode BTC and ETH performance this year-what does the altcoin season mean?

Glassnode Reports BTC and ETH Performance Analyzing the Altcoin Season Impact

Source: Glassnode, Alice Kohn, UkuriaOC, CryptoVizArt, Checkmate; Compilation: Song Xue, LianGuai

Foreword:

The digital asset market continues to show impressive relative performance, with BTC and ETH experiencing significant appreciation compared to the US dollar and gold. However, within the industry, Bitcoin’s dominance continues to rise, as indicated by several indicators and methods that observe capital rotation.

Summary:

• In 2023, the digital asset market achieved remarkable returns, with BTC and ETH outperforming traditional assets such as gold by 93% and 39% respectively.

• Compared to previous cycles, the adjustments in the two major markets are significantly smaller, indicating the support from investors and positive capital inflow at work.

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• Our “altcoin season” indicator shows a meaningful appreciation relative to the US dollar for the first time since the market cycle peak. However, it’s worth noting that this is happening against the backdrop of Bitcoin’s increasing dominance, as its market value has risen by 110% since the beginning of the year.

In recent weeks, the price of Bitcoin has risen by over 30%, partly due to positive progress related to various Bitcoin ETF applications approved by the SEC. It’s also noteworthy to compare Bitcoin and digital assets’ relative performance to traditional asset categories such as commodities, precious metals, stocks, and bonds.

In this issue, we will explore the impressive relative performance of digital assets in 2023. So far, the performance of BTC and ETH has significantly outperformed traditional assets, with smaller declines compared to previous cycles.

Relative Resilience

The chart below compares BTC and ETH prices denominated in gold, demonstrating their performance compared to the traditional store of value. In 2023, BTC appreciated by 93% relative to gold, while ETH calculated in gold rose by 39%. This strong performance is achieved amid increasing global uncertainty, which may have attracted the attention of many traditional investors.

Relative performance of BTC and ETH compared to gold in 2023

We can see that the returns of BTC ? and ETH ? have been closely correlated throughout 2023 on a rolling 30-day basis. Both assets have experienced similar downward movements, but Bitcoin has shown stronger performance during the uptrend.

We can also see that the relative volatility of these two digital assets exceeds that of gold (black), with smaller bidirectional price fluctuations for gold.

Relative Performance of BTC and ETH to Gold in 2023 (30-day change)

The relative strength of digital assets can also be observed by evaluating the deepest corrections during macro uptrends. Here, we will assess this indicator for ETH as it allows us to see the performance relative to the US dollar (external benchmark) and compare it with market leader BTC (internal benchmark).

We believe the cycle low for ETH/USD was in June 2022, following the collapses of 3AC, Celcius, and LUNA-UST. Since then, the deepest correction for ETH/USD (relative to local highs) was -44%, which occurred during the FTX failure. Today, the trading price of ETH is down 26% from the 2023 high of $2,118, which is much stronger than the -60% or larger declines seen in previous cycles.

Ethereum: Bull market correction pullback

The strength of BTC is also quite apparent, with the deepest correction in 2023 only being -20.1%. In the 2016-17 bull market, periodic corrections exceeded -25%, while in 2019, it retraced over -62% from the high in July.

Bitcoin: Bull market correction pullback

To assess capital rotation within the digital asset market, a useful reference is to look for periods where ETH outperforms BTC. The following chart shows the maximum drawdown depth of the ETH-BTC ratio compared to the local high of the current uptrend.

In the previous cycle, during the bear market recovery phase, the relative drawdown for ETH exceeded 50%, while the current drawdown is at 38%. The duration of this trend is particularly interesting, as the devaluation of ETH relative to BTC has exceeded 470 days so far. This highlights the potential trend between cycles, where Bitcoin’s dominance increases for an extended period during bear markets.

This tool can also be used to monitor the turning points in the risk-on and risk-off cycles mentioned in WoC 41 (which will be further discussed in this edition).

ETH: ETH-BTC ratio bull market correction pullback

This chart provides another perspective on relative performance, showing the oscillation indicators of rolling quarterly, weekly, and daily investment returns for the ETH/BTC ratio. The barcode indicator (in blue) highlights periods in all three time frames where ETH underperforms relative to BTC.

Here we can see that the recent weakness in the ETH/BTC ratio is similar to May to July 2022, when the price ratio reached the same level of 0.052.

ETH: Quarterly, monthly, and weekly price performance of ETH/BTC ratio

Investor Sentiment

Upon deeper analysis of the Ethereum price model, we note that the trading price of ETH is $1,800, which is 22% higher than the actual price ($1,475). The realized price is usually considered the average cost basis of all tokens in circulation and is priced at the time of the last trade.

This indicates that ETH holders on average have some degree of profit, but it is still below the extreme price levels often seen during bull market frenzy.

ETH: MVRV Pricing Range

Another way to visualize changes in investor profitability is through the MVRV ratio, which is the ratio between the price and the realized price. In this case, we compare the MVRV ratio with its 180-day moving average as a tool to monitor trends.

Periods where the MVRV ratio is higher than this long-term average indicate that investors’ profitability is becoming more significant and is usually a signal of market uptrend. However, despite the positive market performance of ETH since the beginning of the year, the market still appears to be in negative territory based on this indicator. It seems that the remnants of the bear market in 2022 are slowly fading away.

ETH: MVRV Momentum (180 days)

A Shift in Confidence

We can also use the Investor Confidence in Trend indicator that we developed in WoC 38 to observe the change in sentiment among Ethereum investors by examining the deviation in cost basis between two subgroups: holders and consumers. The purpose of this indicator is to measure the fluctuation in Ethereum investor sentiment. The two subgroups include holders and consumers.

• ? Negative sentiment refers to consumers having a cost basis significantly lower than holders.

• ? Positive sentiment refers to consumers having a cost basis significantly higher than holders.

• ? Transitional sentiment refers to when the cost basis fluctuates close to the holders’ cost basis.

Based on this measure, the market is in a transitional region, showing positive momentum but with relatively small magnitude.

ETH: Investors are confident in the trend

Altseason in terms of USD… but not in terms of BTC

Note: “Altseason” refers to the season of altcoins in the cryptocurrency market, typically meaning that cryptocurrencies other than Bitcoin begin to appreciate rapidly.

Building on the previous research, we are able to generate a new altcoin indicator. In this model, we use the previously defined “risk appetite” environment as the first condition, requiring capital inflows into Bitcoin (BTC), Ethereum (ETH), and stablecoins. We combine this condition with the second condition, which is positive momentum within the “total altcoin market capitalization” (excluding BTC, ETH, and stablecoins).

Here, we look for periods where the total valuation of the altcoin industry is greater than its 30-day SMA. This indicator showed positive signs on October 20th before Bitcoin exploded from $29,500 to $35,000.

Market: Altseason Indicator

Confidence in digital assets is clearly growing when assessing the recent performance of the overall altcoin market cap.

Local uptrends led to a 21.3% increase in industry valuation, with significant percentage changes occurring in just six trading days. This highlights the waterfall effect of investor capital, as the rise in Bitcoin’s dominance often triggers the valuation increase of altcoins relative to fiat currency.

Market: Altcoin Market Cap Daily Percentage Change

However, it is important to remember that Bitcoin’s dominance is continuously increasing. Relatively, Bitcoin currently holds over 53% of the digital asset market valuation, while the dominance of Ethereum, altcoins, and stablecoins will decrease relative to Bitcoin in 2023. Bitcoin’s dominance has risen from a periodic low point of 38% by the end of 2022.

Market: Relative Market Cap

To wrap up this point, we can compare the year-to-date growth rate of Bitcoin and the total altcoin market cap (excluding stablecoins). Compared to altcoins, Bitcoin’s market cap has grown by 110% in 2023, an impressive yet relatively smaller increase of only 37%.

This highlights an interesting market dynamic where the altcoin industry outperforms traditional assets like fiat currency and gold but lags behind Bitcoin.

Global digital asset market performance since the beginning of the year

Summary

The digital asset market has achieved impressive returns in 2023, surpassing the initial recovery phase and entering an upward trend again. The market leaders BTC and ETH have experienced a significant smaller market adjustment in 2023 compared to the previous cycles, indicating a level of investor support and positive capital inflow.

Among various indicators, including the altcoin index we are currently developing, we have witnessed a significant increase in the market valuation of the altcoin industry since the previous peak of the cycle. However, it is worth noting that this performance is measured relative to fiat currency (i.e. USD). In the field of digital assets, Bitcoin’s dominance continues to rise, resulting in a market capitalization growth of over 110% since the beginning of the year.

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