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Crypto Speculation Index Drop Suggests Bitcoin Bull Market Resumption
It is observed that bull markets stall during periods of excessive optimism, only to resume once the speculative foam has cleared.
Capriole Investments Cryptocurrency Speculation Index Shows Speculative Excesses prevalent during of the first quarter have dissipated, indicating the possibility of a new bullish trend in prices in bitcoin {{BTC}}, the largest cryptocurrency by market value.
The speculation index, which measures the percentage of alternative cryptocurrencies (altcoins) with 90-day returns higher than Bitcoin, has settled below 10%, down significantly from a January high of nearly 60%. Bitcoin, the leading cryptocurrency by market cap, hit new record highs above $70,000 in the first quarter and has since cooled to $58,000.
As of this writing, there are more than 14,800 altcoins in existence, according to data source Coingecko. Most of these coins are illiquid and have difficulty proving their use cases. Thus, altcoins are generally seen as speculative instruments, with volumes closely related to Google Trends, an indicator of retail investor interest, and the outperformance of altcoins versus BTC are seen as a sign of speculative mania.
Speculation Index. (Capriole Investments)
Speculative washouts act as corrective mechanisms, helping to realign asset prices with fundamentals and moderate excessive speculation. Thus, they set the stage for a healthier environment in the long run.
This has been the case in the cryptocurrency market. Since 2019, a speculation index below 10% has coincided with the start of strong bitcoin rallies, as observed in the first half of 2019, the end of 2020, and the second half of 2023.