Bitcoin ended the month of April in the red – its first losing month since September 2020.
Not that its April performance (-2%) was a shocker, but it paled alongside altcoins, which registered an average 47% gain for the month.
In January, bitcoin accounted for 73% of the total crypto market cap. That figure has now sunk below 50%.
“Given the historical and psychological significance of the 50% (market cap) level, a decisive move below said level could mean that bitcoin underperforms in the months ahead,” says Kraken Intelligence’s market recap for April 2021.
“The rotation into altcoins can perhaps be explained by market participants consciously choosing to venture further out on the ‘crypto risk curve’ and coming to terms with ‘The Law of Large Numbers’. That is, as bitcoin gets larger and larger, it cannot sustain the same growth. Therefore, market participants may see altcoins as having a greater upside and/or a better risk-reward profile.”
Despite bitcoin remaining rangebound for the past several months, demand from institutions remains strong and bitcoin’s April low of $47 000 may have set the base for a march back up to the coin’s all-time high of $65 000.
A host of favourable indicators released in April suggest the global economy is on the rebound, though market participants remain on edge over talks of higher taxes, fears of inflation and stock prices at record levels.
Bitcoin has shown a strong positive correlation to stocks, and the possibility of a stock market correction may be weighing on its sluggish performance over the last eight weeks.
The total market cap of all cryptos is now $2.4 trillion, of which bitcoin accounts for just 44%, with Ethereum (ETH) surging to 19% from just 12% earlier in the year.
The story of the last month has been ETH’s 140% sprint since the beginning of April, with Kraken Intelligence suggesting the next stop may be $5 200 (from the current price of $4 100). ETH has now recorded seven consecutive months of gains, with newfound institutional support – and the launch of several ETH-focused exchange traded funds in Canada – providing lift to prices. The second largest cryptocurrency by market cap has further boosted by some technological improvements that will allow for speedier adoption of the Ethereum network (and its native currency ether) as a financial and business hub.
Ethereum’s business case differs from that of bitcoin in that it is used to solve actual business and transactional problems.
Tens of thousands of Ethereum users are able to lend, borrow and earn interest using ether as collateral. Even JP Morgan sees upside in Ethereum as institutions can now invest in the cryptocurrency via ETFs. Unlike bitcoin, which will never have more than 21 million coins in issue, Ethereum in circulation has been rising by about 5% a year, but that will drop to 1-2% a year once the new network protocol (known as EIP 1559) is introduced later this year. The rate at which ETH supply is inflated each year has a direct bearing on expected future prices.
Other factors driving the ETH price are the growth in non-fungible tokens and stablecoins, most of which rely on the Ethereum network.
JP Morgan says the rise in bond yields and the eventual normalisation of monetary policy is putting downward pressure on bitcoin as a form of digital gold, just as gold prices have been suppressed by the availability of higher yielding assets.
Two other cryptocurrencies grabbing investor attention in the last month were Cardano and Dogecoin, though for very different reasons.
Cardano is seen as a possible competitor to Ethereum, and its parent company IOHK announced a “new partnership with the Ethiopian government to implement a national, blockchain-based student and teacher ID and attainment recording system to digitally verify grades, remotely monitor school performance, and boost education and employment nationwide”.
Dogecoin ended the month of April with a jaw-dropping 500%-plus return, and now ranks among the top five cryptocurrencies in terms of market capitalisation.
Tesla CEO Elon Musk has helped punt this coin, which has benefitted from the network effects of a growing body of investors willing it to the moon and beyond.
Altcoins may have stolen the thunder over the last eight weeks, but don’t write off bitcoin just yet, says Kraken Intelligence. Its consolidation above the $45 000 level has allowed the market “to catch its breath and for BTC to build a new support to potentially lift off from in the not-so-distant future”.