T

Quantitati In`tor
”Macro-scale
quantitative market
analysis”

VOL.I. . . No.59 MAY 16, 2021 BC ANALYTICS, LLC

Abstract
By BENJAMIN J. COWEN, PHD

You have jumped into the cryptoverse! Welcome to the

59th edition of The Quantitative Investor, a weekly newsletter
for those who want to dive deep into the metrics of various
financial markets, with a focus on cryptocurrencies, and visu-
alize data not often presented elsewhere. The main objectives
of this newsletter are to graph key metrics, identify any trends
or correlations, and present the data which will help the reader
understand long-term price movements. This report is strictly
not financial advice and should not be treated as such. Instead,
it is focused on analyzing historical data, presenting the data in
a manner which is informative, and making a few projections Figure 1: Bitcoin dominance vs. time.
based on mathematics alone. The reader is still expected to do
their own research when it comes to investing, especially within What could cause the dominance of Bitcoin to could back
the cryptocurrency asset class. up? Well the obvious cause would be manic price discovery
by Bitcoin up tens of thousands of more dollars. However, an-
other viable option would be a Bitcoin correction (with altcoins
correcting harder). Barring an immediate Bitcoin capitulation,
it seems like there is a decent chance that altcoins continue to
The Middle Game move up.

The Bitcoin dominance has been dumping over the last

several months and will likely change course at some point
over the next several weeks. We mainly say this because of
the similarities with prior dominance capitulations and also the
fact that Bitcoin is testing the 20W SMA as I write this report.
Whether Bitcoin bounces off the 20W SMA and puts in new
ATHs or dumps below the 20W SMA, the dominance of Bitcoin
will likely move up. With this in mind, the main thing we should
be concerned about with regards to large altcoin positions is
whether Bitcoin will hold the line, and how long will it hold it
(if it does hold) before going back into price discovery mode.
It has been a about a month since we discussed the Bitcoin
dominance in-depth, giving us reason for a dedicated update.
Fig. 1 shows the Bitcoin dominance vs. time. We have clearly Figure 2: Bitcoin dominance vs. time, color-coded by whether
left the macro-level downtrend so far, similar to the last bull Bitcoin is above or below its 20 week moving average (MA).
market. We know that lines on a chart do not have any predic-
tive power, but it seems likely that we return to our downtrend However, if they do, it may present a key opportunity for
channel at some point, as the Bitcoin dominance will likely profit taking either back to stable coins or back to Bitcoin to
rebound this summer. protect yourself against the downside risk of altcoins. For
VOL.I. . . No.59 The Quantitative Investor MAY 16, 2021 2

instance, if the ETH/BTC valuation continues to pump over time. Fig. 4 shows the Bitcoin dominance vs. time, color-coded
the next few weeks, I will likely continue to take some profits by whether Bitcoin is above or below its prior all-time-high
back to Bitcoin so that I can increase the Bitcoin position of my (ATH).
portfolio.

Figure 5: Bitcoin dominance vs. time, color-coded by whether

Figure 3: Altcoin dominance vs. time.
Fig. 2 shows the Bitcoin dominance vs. time, color-coded
by whether Bitcoin is above or below its 20 week moving
average (MA). After the last altcoin bubble, the dominance of
Bitcoin immediately went up after Bitcoin dropped below its 20
week MA. Bitcoin continued this move (off and on), and went to
approximately 73.5% dominance. Since then, the dominance of
Bitcoin has dropped back down below our downtrend channel.
However, notably we have our first data point in a while where
Bitcoin closed below the 20W SMA. Is this data point a fluke,
or does it represent a coming trend reversal?
Bitcoin is above or below its prior all-time-high (ATH), and
whether Bitcoin is above or below its 20 week MA.
Finally, Fig. 5 shows the Bitcoin dominance vs. time,
color-coded by whether Bitcoin is above or below its prior
all-time-high (ATH), and whether Bitcoin is above or below its
20 week MA. This helps tie all the prior charts together to better
understand the nature of BTC dominance. The reason we have
our first data point with a blue inner circle and red outer circle is
because we are not yet sure that $64k is the market cycle peak.
While it seems there is a decent chance that the price of Bitcoin
could temporarily correct, there is a lot of evidence to suggest
that Bitcoin will trend to over $100k later this market cycle.
In the weekly video we go through a long discussion of
strategies based on various scenarios and various goals. Hope-
fully the discussion is useful to everyone as we continue to
navigate the cryptocurrency market cycle! The main thing to
takeaway is that there is likely a shift in the Bitcoin dominance
coming, where it moves back up, and now is the time to start
thinking about how to use that information to set your portfolio
up accordingly. With that said, we could still have a ways to go
before the trend actually reverses, but it seems like it is coming
this summer.

Total Cryptocurrency Market

Capitalization
Figure 4: Bitcoin dominance vs. time, color-coded by whether
Bitcoin is above or below its prior all-time-high (ATH). Fig. 6 shows the total cryptocurrency market capitalization
and fair value logarithmic regression trend line. It still seems
It may not be intuitive to picture the altcoin bubble in Fig. 2 that within the grand scheme of the market cycle, we could
because it is inverted in terms of how we may typically think of easily have a ways to go; however, with that said, it does not
bubbles. For this reason, Fig. 3 shows the altcoin dominance vs. mean we will not have corrections along the way.
VOL.I. . . No.59 The Quantitative Investor MAY 16, 2021 3

Figure 8: Percent difference between the total cryptocurrency

Figure 6: The total cryptocurrency market capitalization and market capitalization and fair value logarithmic regression trend
fair value logarithmic regression trend line. line with similarities noted between this cycle and the cycle of
2013.

To better illustrate the narrative of having further to go this

cycle, Fig. 7 shows the percent difference between the total
cryptocurrency market capitalization and fair value logarithmic
regression trend line (shifted by 100% so 100% is the fair value).
I know I have said this a lot, but to reiterate, there could be
pullbacks along the way larger than the ones we have currently
seen, which would not detract from a move by Bitcoin later this
market cycle to the 6-figure mark.

Risk

105 1

0.9

Figure 7: Percent difference between the total cryptocurrency 4 0.8

10
market capitalization and fair value logarithmic regression trend
0.7
line (shifted by 100% so 100% is the fair value).
BTC Price ($)

103 0.6

0.5

102 0.4

0.3

1 0.2
10
Fig. 8 shows the percent difference between the total cryp-
tocurrency market capitalization and fair value logarithmic 0.1
regression trend line with similarities noted between this cycle
100 0
and the cycle of 2013. While there is no guarantee we get a 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
local top here, we just want to show the similarities. The way
this could theoretically continue to play out is if Bitcoin does Figure 9: Bitcoin price vs. time with a color-coded risk dimen-
not hold the 20W SMA. We will need to wait and find out! sion.
VOL.I. . . No.59 The Quantitative Investor MAY 16, 2021 4

105 1 104 1
Price
Risk 0.9 0.9
104
0.8 103 0.8
3
10 0.7 0.7
BTC Price ($)

ETH Price ($)

0.6 2 0.6
10
102

Risk

Risk
0.5 0.5
101 1
0.4 10 0.4

100 0.3 0.3

0.2 0 0.2
10
10-1
0.1 0.1

-2 0 -1 0
10 10
2010 2012 2014 2016 2018 2020 2016 2017 2018 2019 2020 2021

Figure 10: Bitcoin price (primary y-axis) and risk (secondary Figure 12: Ether price (primary y-axis) and risk (secondary
y-axis) vs. time. y-axis) vs. time.

103 1

0.9

0.8

0.7
Asset Price Risk Risk (Last Wk) 102
LTC Price ($)

BTC $49403 0.611 0.698 0.6

ETH $3884 0.652 0.672
0.5
LTC $316 0.619 0.671
ADA $2.34 0.603 0.535 0.4
LINK $44.28 0.623 0.663 101
0.3
XRP $1.58 0.450 0.459
XMR $400 0.551 0.600 0.2
SPX $4174 0.863 0.895
0.1
0
10
2013 2014 2015 2016 2017 2018 2019 2020 2021

Figure 13: Litecoin price vs. time with a color-coded risk

dimension.
4500 1

0.9 103 1
4000
Price
Risk 0.9
0.8
3500
0.8
0.7
3000
0.7
102
ETH Price ($)

0.6
LTC Price ($)

2500 0.6
0.5
Risk

2000 0.5

0.4 0.4
1500
101
0.3 0.3
1000
0.2 0.2

500 0.1
0.1

0 100 0
Jan 2019 Jul 2019 Jan 2020 Jul 2020 Jan 2021 2015 2016 2017 2018 2019 2020 2021

Figure 11: Ether price vs. time with a color-coded risk dimen- Figure 14: Litecoin price (primary y-axis) and risk (secondary
sion. y-axis) vs. time.
VOL.I. . . No.59 The Quantitative Investor MAY 16, 2021 5

2.5 1 103 1

0.9 0.9

2 0.8 0.8
102
0.7 0.7

1.5 0.6 0.6

ADA ($)

XMR ($)
0.5 101 0.5

1 0.4 0.4

0.3 0.3
100
0.5 0.2 0.2

0.1 0.1

0 -1
10
Jan 2019 Jul 2019 Jan 2020 Jul 2020 Jan 2021 Jul 2021 2015 2016 2017 2018 2019 2020 2021

Figure 15: Cardano price vs. time with a color-coded risk Figure 17: Monero price vs. time with a color-coded risk
dimension. dimension.

1 103 1
Price Price
Risk 0.9 Risk 0.9
100
0.8 0.8
102
0.7 0.7

0.6 0.6
XMR ($)
ADA ($)

Risk

Risk

0.5 101 0.5

10-1
0.4 0.4

0.3 0.3
100
0.2 0.2

0.1 0.1

10-2 0 10-1 0
Jan 2018 Jan 2019 Jan 2020 Jan 2021 2015 2016 2017 2018 2019 2020 2021

Figure 16: Cardano price (primary y-axis) and risk (secondary Figure 18: Monero price (primary y-axis) and risk (secondary
y-axis) vs. time. y-axis) vs. time.
VOL.I. . . No.59 The Quantitative Investor MAY 16, 2021 6

1 4500 1

0.9 0.9

0.8 4000 0.8

101
0.7
0.7

S&P 500 ($)

3500 0.6
0.6
LINK ($)

0.5
0.5

3000 0.4
100 0.4
0.3
0.3
2500 0.2
0.2
0.1
0.1
2000 0
10-1 Jan 2017 Jan 2018 Jan 2019 Jan 2020 Jan 2021 Jan 2022
Jan 2018 Jan 2019 Jan 2020 Jan 2021

Figure 19: Chainlink price vs. time with a color-coded risk Figure 21: Price of the S&P 500 vs. time with a color-coded
dimension. risk dimension.

1 104 1
Price
Risk 0.9 0.9

0.8 0.8
101 103
0.7 0.7
S&P 500 ($)

0.6 0.6
LINK ($)

Risk
Risk

2 0.5
0.5 10

0.4 0.4
100
0.3 0.3
101
0.2 0.2

0.1 Price ($) 0.1

Risk
10-1 0 100 0
Jan 2018 Jan 2019 Jan 2020 Jan 2021 1920 1940 1960 1980 2000 2020

Figure 20: Chainlink price (primary y-axis) and risk (secondary Figure 22: S&P 500 price (primary y-axis) and risk (secondary
y-axis) vs. time. y-axis) vs. time.