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
There was panic when Bitcoin dropped (and stocks as well) after the Trump and Musk feud but now the market has already shrugged it off. This is why everything you need to know is typically in the charts and you can ignore most news headlines when trying to rationalize price action.
I would like to dedicate more time on the business cycle for this newsletter and why I think we still have a few months left (at least 6-9 months) until a potential cycle top in Bitcoin and altcoins. Before I dive in, make sure you read last week’s newsletter first for more context as I want to avoid repeating myself too much. Let’s get into it.
The US Manufacturing PMI represents a real-time gauge of the business cycle and measures when it’s expanding or contracting. In general, when the US PMI is below 50, the business cycle is contracting as well as risk assets due to earnings declining, wages stagnating/declining and financial conditions tightening. When the US PMI crosses above 50 and rises to some cycle peak (earnings are growing as well as wages, financial conditions loosening), this often represents outperformance of risk assets (especially small cap stocks and altcoins). So where are we in the business cycle? We have been in contraction since November 2022 until today or about 31 months. This is longest period of contraction since the 1980s. Yes, you heard that right. This is a key reason why I think this cycle for Bitcoin and altcoins has been so slow and why alt season feels like it’s cancelled. My stance is that I don’t think it’s cancelled, its just delayed. I looked at previous contraction periods since the 1980s for some of the longest ones for comparison and then focused on the ones since 2008 as that’s when Bitcoin is introduced and eventually altcoins. I also looked at how long these contraction periods lasted, how long the expansion periods lasted and what were the small cap and altcoin returns during these expansion periods. All the data is summarized below.
Before altcoins were introduced, the next best proxy is small cap stocks which can be measured through the Russell 2000 index. Every time the US PMI ended its contraction phase (a cross above 50 rising steadily for many months), it would enter into an expansion phase resulting in outperformance for small cap stocks before 2008 and then eventually altcoins when they were introduced in 2014. It’s just a matter of time before the US PMI ends its contraction phase and enters an expansion phase. History tells us we are long overdue.
There’s a decent amount of variation with the data and I wanted to see what the correlation was between the number of contraction months versus the number of expansion months. Here’s what the data shows:
This shows a borderline moderate correlation between the number of contraction months vs. the the number of expansion months. The longer the contraction lasts the longer the expansion lasts to an extent.
I then drilled down further to see if there was any difference in correlation if I removed the data points that had very short contraction periods (less than 12 months) since our focus is to better understand other examples where we had a prolonged contraction period like the one we are experiencing currently. Here’s the data filtering for periods where the contraction period is greater than 12 months:
The correlation results did not change much unfortunately so it will require further analysis of other potential relationships in future newsletters. I think the key takeaway from this is that there is some moderate positive relationship between the number of contraction months vs. expansion months. The best is yet to come and the minimum number of expansion months I see is 6 to 9 months whenever we get US PMI crossing above 50 for at least 3 months (to rule out any more fake outs like we had earlier this year). To me this puts the cycle top no earlier than December 2025. I will still monitor the various cycle top indicators for Bitcoin and altcoins but this will be a key part of the cycle for alt season to take effect.
Bitcoin Update
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.
Solana Update
Solana is rallying with Bitcoin at the moment and same price level as last week. This should continue higher as long as Bitcoin goes higher.
Solana vs. Bitcoin is slightly below this key support level so I would like to see it close higher with the next weekly close.
Dogecoin Update
Dogecoin went to 0.168 like I mentioned from last week so it should go higher from here assuming Bitcoin continues higher:
Sui Update
Sui got close to the next support level near 2.85 that I mentioned last week and bounced. I highly doubt it goes any lower than that and then it becomes a formation of an inverse head & shoulders pattern which is still bullish:
Large Caps
For large caps, here’s the ones that stand out on a long term timeframe:
- XRP
- 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.
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