Alts/BTC Relationship Guide By Onchainlabs

To start this guide it’s important to note that the crypto market is mainly driven by Bitcoin. Bitcoin is the king for the majority of movements in altcoins as DXY is for trading Forex, since it is the main driver for most of the currencies price action.

First, we have to understand Bitcoin Dominance.

Bitcoin Dominance (BTC.D)

The Bitcoin dominance chart is the key to understanding the next big movement on altcoins. When Bitcoin is moving strongly to the upside it will begin to take market share from altcoins and as a result whenever BTC.D is appreciating and the Bitcoin price is rising, the altcoins will start falling sharply against their BTC pair. In other words, their satoshi value (the real value of an altcoin) will start to decline. Other thing to take into consideration here is that altcoins satoshi value can also decline while there’s fear and panic in the market because Bitcoin starts falling sharply and this happens because some investors prefer to lower their market exposure by holding Bitcoin or stables, rather than holding altcoins.

This is extremely important to understand as even if the altcoin value is decreasing against their BTC pair, it can rise on its USD value since it will follow Bitcoin price. Now let’s see an example of this:

As you can see ETH/BTC tanked while Bitcoin and BTC.D has been going higher and ETH/USD has been moving somewhat bullish in the meantime. What do you think will happen when Bitcoin and BTC.D finally finds resistance and start dropping? Well, altcoins will fall sharper because its BTC pair value is low.

BTC.D Resistance Effect

When BTC.D and BTC finds resistance and start declining, altcoins USD pairs will start decline way more aggressively than Bitcoin Price for two main reasons:

1. Their sathosi value is already low.
2. There will be an additional sell-off pressure from panic sellers and will cause the altcoins BTC pair value to drop further.

Since the satoshi value of an altcoin its the real value behind it, when the ALT/BTC is pushing down or up strongly, the altcoin USD value will follow its BTC pair despite its own price action.

In this chart BTC.D is currently hanging at a very important resistance level. A breakout from the HL trendline will take BTC.D higher as Bitcoin price rise or falls sharply and this will make altcoin satoshi’s value to decline. Ideally, we would like to see this resistance hold in order to start seeing some strength on altcoins BTC pairs and a shaper downside movement from here with a slow bullish Bitcoin can certainly create a rally on some altcoins.

Numbers

Every altcoin dollar price is calculated with its BTC/Satoshi price multiplied by the present Bitcoin dollar price and for this reason is always a good practice to not only look at the USD pair of an altcoin but also take into consideration the alt/BTC chart of it.

Example

1. Lets say ETH has a satoshi price of 0.040 BTC and Bitcoin price is $10.000. The dollar price for ETH would be calculated as 0.040 x $10.000 = $400
2. Now say for example that BTC price has gone up to $15.000 and ETH satoshi’s price declined by 25% to 0.030 BTC (from 0.040) as a result of BTC gaining dominance. Now, the price of ETH will be calculated as 0.030 x $15.000 = $450. This will make look like ETH has been performing good, but is really just BTC appreciating and ETH rebalancing, and when BTC hits resistance and start moving bearish, ETH price will fall harder since it now has a lower satoshi value.
3. Resistance Effect

If BTC.D were to find resistance and at that time BTC price was $15.000, a quick drop of BTC price to $10.000 (a 33.33% drop) would cause ETH price to be negatively affected by several factors:

1. BTC Drop: ETH price will fall in dollar value by 33.33% because Bitcoin has fallen by that amount
2. Initial Decline of the Altcoin Value: ETH price is already down against its BTC pair from the initial surge in price as a result of greater BTC dominance -0.010 BTC
3. Additional Sell Off: ETH will loose more satoshi value from panic selling from investors quickly selling at market price. Lets say ETH fall a 20% more because of this:

In the prior example, the satoshi price of ETH at $15.000 was 0.030 BTC. But an additional 20% sell off will make the satoshi price decline equal to 0.024 (0.030 BTC x 0.80 = 0.024BTC).

Therefore, ETH new dollar price will be 0.024 x $10.000 = $240. This represents a 40% + drop in price while BTC only declines 33.33%. This is the huge difference.

All this example also applies for a bullish scenario as when BTC.D starts declining and BTC moves slowly bullish or in a range, alts will start to outperform Bitcoin.

Market tells it all

In the chart above is a clear example of what we have been talking about. In this case we are comparing BTC against ETH performance, but I invite you to do this with other altcoins that are not in the top 5 market cap and you’ll see there’s a huge % difference.

When BTC.D and BTC finds resistance after moving bullish for a long period of time, there was a huge decline and shaper one in ETH. The opposite applies as well when BTC.D starts moving bearish and Bitcoin slows down, we will see how altcoins start to outperform Bitcoin in the such called “Altcoin seasons” and essentially this is where you’ll want to start investing on altcoins (As long as BTC moves slow).

Current Scenario

Scenario 1

Bitcoin has been ranging from the last 2 years in between 29.500 and 65.000. BTC.D has also been ranging so technically speaking, all of this consolidation will eventually bring an expansion in either side. Right now Bitcoin is sitting at support and the HTF closures are key in order to avoid a fakeout.

BTC.D is now rising and has breakout from this macro HL trendline and now heading towards the Range High. I’m highlighting an ideal scenario in which Bitcoin will start moving bullish from this current support while BTC.D starts climbing up, until eventually BTC.D finds resistance and Bitcoin starts moving sideways or slowly to the upside. This will be the ideal place when you want to start sizing up on altcoins (Not financial advice).

The gray sharp pullback on Bitcoin when Bitcoin is moving bearish and BTC starts declining is where waiting for confirmation on a Bitcoin bottom is the ideal place to start entering on alts, as Alts USD price will decline with BTC and its Satoshis values will start to rise and when Bitcoin finds bottom altcoins USD price will move quicker to the upside.

Scenario 2

As BTC.D is rising, altcoins satoshi value has been declining since most are loosing market share. If Bitcoin keeps moving bearish from any macroeconomic event that impacts risk on assets, it’s very likely that BTC will go for a retest towards the realized price band which right now is sitting at $23.866. Historically, this has been the most profitable zone to enter the market with a very high risk to reward ratio.

In this scenario, altcoins USD price will go even lower than Bitcoin as we have seen on above examples since their satoshi value is very low and most of them will most likely decline another 30 to 50%. This scenario will require that Bitcoin declines another 20-30% and well… by this time, you already know what will happen with altcoins.