There's a permeating myth that altcoins need to outperform Bitcoin for there to be a healthy bull market.
You'll often hear claims like "the Ethereum/Bitcoin ratio is making new lows, so the market can't go up."
A similar notion gets thrown in the stock market, that if equal-weight S&P 500 is underperforming its cap-weight counterpart, breadth is said to be "unhealthy".
Though, we've found that to be far from the truth.
In the case of crypto, there have been countless times where the relative leadership has not been in the altcoins, but yet the asset class did just fine.
Just a few short quarters ago, before the alt season kicked off earlier this year, Bitcoin was outperforming nearly every other major coin as seen by the continued progress in its market-cap dominance:
![](https://media-allstarcharts.s3.amazonaws.com/wp-content/uploads/2021/07/BTC.D.png)
This is simply calculated by evaluating what percentage of the total cryptocurrency market-cap Bitcoin represents. So when this dominance is moving higher, it's signaling that Bitcoin is outperforming both Ethereum and the other major coins.
Because this calculation is looking at things on a market cap basis, it's primarily driven by the Ethereum/Bitcoin dynamic, which both represent the vast majority of the total valuation of the asset class. So by that same token, the ETH/BTC ratio is a great barometer into the relative trends of the other coins outside of these two behemoths (this is also because many of the major tokens are built on the Ethereum network).
When we plot the correlation of Bitcoin with this ratio, you can see just how little they trade with one another:
![](https://media-allstarcharts.s3.amazonaws.com/wp-content/uploads/2021/07/Correlation.png)
Sometimes the correlation is incredibly strong, while at other times it's the complete opposite.
In the strongest of relationships, like Gold to Gold Miners for instance, we'll see the two assets maintain high correlations for extended periods of time, while only briefly dislocating.
That just isn't the case here.
And if you wanted to be extra fancy, you could even run a quick regression analysis. But it's the same story, there's absolutely no relationship here:
![](https://media-allstarcharts.s3.amazonaws.com/wp-content/uploads/2021/07/ETHRegression.png)
But all of this isn't to say that these relative trends provide us with no insightful information at all.
In periods where altcoins are outperforming, that can generally only take place in strong bull markets (or alt season in crypto nomenclature). We saw this in the latter stages of the 2017 bubble, and more recently earlier this year.
So while we definitely don't need this rotation for a bull market, it's always an encouraging sign when we do see it.
And lastly, it goes without saying that these relative trends are the pinnacle of allocating to the right areas in this asset class.
If we're seeing Bitcoin outperforming the others, we're probably off to make more concentrated bets on Bitcoin itself. Alternatively, if Ethereum and the other coins are leading this complex higher, it pays to dive into the smaller names showing the greatest strength under the surface, which was how we played the environment earlier this year.
So where does this whole trend stand today, you ask?
This is a pretty timely discussion because while the entire asset class has caught a bid in the last week, the leadership has been in Bitcoin, not the others - at least yet:
![](https://media-allstarcharts.s3.amazonaws.com/wp-content/uploads/2021/07/Dominance.png)
Just take a look at Bitcoin's Dominance progressing higher these last few months.
Conversely, here's the Altcoins falling back below their pre-covid highs relative to Bitcoin (Crypto members can check out how we analyze these indices, as well what's in them, here).
![](https://media-allstarcharts.s3.amazonaws.com/wp-content/uploads/2021/07/AltRelative.png)
Of course, these are still early days, but Bitcoin's recent leadership has been hard to ignore.
It's why continuing to bet on relative leaders is more important than ever - which is why we published in an in-depth scan on this very topic in yesterday's note.
So while the statement that "altcoins need to outperform" sounds true, the reality is far from it. Extraordinary claims require extraordinary evidence, after all.
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