Welcome to this week’s analysis on which altcoins are performing well and which ones are not. You can view the list here:
Macro Update
As a follow-up from last week’s newsletter, I wanted to provide more clarity on the relationship between PMI Contraction Months vs. PMI Expansion Months. I went further back to the beginning of when the ISM started collecting data since 1948 so I can get as many data points as possible. Here’s the results showing a regression line and an estimate for the number of Expansion Months (17 months) if the next PMI print is 50 and higher and we enter a new expansion period:
I also highlighted two other data points for comparison that had very long contraction periods. Here’s the comparison among these three:
What’s interesting is that these also had inflation problems that resulted in the Fed tightening, a rise in Global M2 and geopolitical conflict. Despite all those challenges, small caps still did really well but not until PMI crossed above 50 and stayed there for a few months. My base case is that we are long overdue for a transition to an expansion period. The next print from the ISM on July 1 will be telling. Here’s what to look out for:
If new orders don’t improve significantly in the next 1–2 months, a sustained rise in headline PMI is unlikely. The current uptick from the S&P Flash PMI is promising but preliminary—strong confirmation from ISM is necessary to instill confidence in a durable rebound.
Why Bitcoin has Been Outperforming Altcoins
I’ve been going deeper in the rabbit hole with the business cycle lately because I think it’s the key variable that many in crypto are not focusing enough time on. I constantly see comments like “Alt season is cancelled” and “Only Bitcoin matters”. There’s a reason Bitcoin is outperforming altcoins in general since late 2022. It happens every 4-year cycle roughly for the first 2-3 years and then the last year of the cycle, altcoins outperform Bitcoin. But why is it taking so long this time around? I answered part of this earlier with the PMI contraction vs. expansion periods. Then you might ask “well if PMI is in contraction then how can Bitcoin be doing so well and altcoins are not? Aren’t Bitcoin and altcoins both risk assets?” Yes, they are both risk assets but the key difference is market cap size. The other variable besides PMI to consider is Global M2. Here’s how each of these impact risk assets:
- Global M2 is the liquidity engine and tide that lifts all boats for risk assets regardless of economic fundamentals
- Indicator of financial conditions
- Indicator of risk appetite
- Correlates strongly with forward returns
- PMI is the cyclical multiplier that signals whether the economy is expanding or contracting in the real world
- Earnings growth expectations
- Capital expenditure decisions
- Sector rotation (cyclicals outperform in PMI upturns)
- Small caps and commodities surge post-PMI troughs
- PMI reflects economic momentum, often amplifying or dampening the effects of liquidity already in the system
Another way of looking at this is:
- Global M2 is the water level in the economic reservoir
- PMI is the pressure that pushes water through the pipes
- You need both volume and pressure to create flow (returns)
So based on this framework, market returns for risk assets is a function of Global M2 and PMI strength. Furthermore, it also tells us the positioning based on different market regime combinations:
So where is the market currently in terms of this framework? Global M2 has been on the rise for those that aren’t familiar with this. I first saw this presented by Raoul Pal and have seen variations where it has either a 10-week or 12-week lead applied and has been a fairly decent predictor of Bitcoin price direction. Here’s what it’s showing for the next 12 weeks:
This is telling us Global M2 is rising for the next 12 weeks. Then let’s look at PMI next which if you’ve been reading the last couple newsletters, it’s been in contraction (below 50) since November 2022:
So that puts us in this category of Global M2 rising with PMI contraction which tells us that Large Caps will outperform Small Caps. You can replace “Large Caps” with “Bitcoin” and “Small Caps” with “Altcoins” in terms of crypto.
We can also zoom out further to see these categories in action relative to altcoins. Here’s the altcoin to Bitcoin market cap ratio versus PMI:
Once we have PMI firmly above 50, the market regime should transition to “Small Caps outperforming Large Caps” or in the case of crypto “Altcoins outperforming Bitcoin”. This is also why I screen altcoins to identify outperformers because there are exceptions that exist even during this current market regime of “Bitcoin outperforming Altcoins”. Imagine once we transition to the next market regime of “Altcoins outperforming Bitcoin” for the current outperformers. I expect these outperformers to have a multiplier effect when PMI strength returns.
Bitcoin Update
Despite the scare with the Iran and Israel conflict, I do not see this short term noise having much impact. Not much to update here as I think we’re still on track with what I mentioned last week that this recent move is playing out similar to October 2023 and November 2024. We are on the cusp of going a lot higher and it’s just a matter of being patient. As I also showed in the Global M2 chart earlier, Bitcoin and risk assets in general are set to go higher.
Solana Update
Solana is still following Bitcoin and I expect it to higher once Bitcoin goes higher too:
Solana vs. Bitcoin still held above this key support level so expecting higher from here:
Dogecoin Update
Dogecoin still above 0.168 like I mentioned from last couple weeks so it should go higher from here assuming Bitcoin continues higher:
Sui Update
Sui revisited the key support level of 2.85. Need to see this go higher otherwise another re-test of that level will likely push it lower to 2.35.
Large Caps
For large caps, here’s the ones that stand out on a long term timeframe:
- XRP
- TRON
- Sui
- Hyperliquid
Pepe has bounced with the rest of the market so could be set to go higher from here.
Model Portfolio Update
The service I use to track the model portfolio seems to still be undergoing maintenance so I will start looking for an alternative solution to track the portfolio.
I pointed out which coins are still in a decent buy zone so be sure to review those if you are still looking to allocate. However I think the buy zone is closing shortly now that Bitcoin is over $100,000. Altcoins will soon catch up.
To see the detailed analysis on Mid Caps and Small Cap sector outperformers as well as the complete portfolio, sign up and become a pro today and gain an edge in the crypto market.
