Today I will share with you a strategy that can earn you a lot of money and avoid losing everything: the Dumbbell Strategy.
By analyzing the performance of the following cryptocurrencies:
BTC, the eternal king: BTC.D index
ETH lags behind BTC in this stage: ETH/BTC exchange rate
Overall weakness in altcoins: (1) Altseason index (2) Altcoin market cap
Meme coins are high risk high reward, outperforming BTC and ETH: Memecoin index
What is the Dumbbell Strategy?
The Dumbbell Strategy, as mentioned by Taleb in “Antifragile,” involves adopting a conservative strategy in one area and an open strategy in another, abandoning the middle ground. In simple terms, it means “mostly conservative, partially aggressive.”
Applied in the cryptocurrency market, you can allocate most of your assets to safer assets like BTC and ETH, while investing a small portion in high-risk assets like Meme coins. Try to avoid participating in most altcoins.
This way, you can maintain stability in the volatile cryptocurrency market while also having the opportunity to earn high returns through high-risk assets like Meme coins.
Next, let’s objectively look at how BTC, ETH, most altcoins, and Meme coins are performing through some indicators.
BTC, the eternal king: Refer to the BTC.D index (Bitcoin Dominance)
The Bitcoin Dominance index reflects the percentage of Bitcoin’s market capitalization, often used to determine whether the altcoin season has begun. It can be seen from the chart that during the last bull market in 2021, when the altcoin season began, the BTC.D index was significantly declining.
The logic behind this is: BTC.D index decline ➡️ Decrease in Bitcoin dominance ➡️ Increased risk ➡️ Altcoins regain market share ➡️ Altcoins start surging. (And vice versa)
Currently, it is still the Bitcoin season, with this index rising since the beginning of the year and reaching 56% as of July 26th. Altcoins are still not outperforming Bitcoin, indicating that Bitcoin maintains its dominance.
ETH lags behind BTC in this stage: Refer to the ETH/BTC exchange rate
Typically, the larger the ETH/BTC exchange rate, the smaller the price difference between the two, indicating strong performance by ETH. Conversely, a smaller ratio indicates a larger price difference and weaker performance by ETH.
This indicator is also used to gauge market interest in altcoins. If this ratio starts outperforming BTC, it may be a sign of funds flowing into altcoins.
Currently, the ETH/BTC exchange rate is still relatively low, showing weaker performance by ETH. Even the approval of an ETF has not been able to turn the tide for Ethereum. However, being at a low level, if you have confidence in ETH, you can consider gradually building positions and waiting for a subsequent rise.
Overall weakness in altcoins: Refer to (1) Altseason index
The Altseason index tracks the sentiment in the altcoin market, calculating the percentage of the top 50 altcoins outperforming Bitcoin. A value greater than 75 indicates the altcoin season, while less than 25 indicates the Bitcoin season.
It is evident that we are currently in the Bitcoin season, with the index at 16, indicating weak momentum for altcoins. Since the beginning of this year, the index has only exceeded 75 at the end of January and lasted only half a month. Compared to a prolonged period from March to June 2021 when the index exceeded 75 for three months, it is not a true altcoin season.
Overall weakness in altcoins: Refer to (2) Altcoin total market cap
This indicator, Crypto Total Market Cap Excluding BTC & ETH, reflects the total market value of cryptocurrencies excluding BTC and ETH, indicating the overall situation of funds flowing into the altcoin market.
After a significant increase in the total altcoin market value at the beginning of the year, it has not continued the trend and has been fluctuating during these months of volatile market conditions. Currently, there is no clear breakout signal, indicating that altcoins are still relatively weak.
Meme coins are high risk high reward, outperforming BTC, ETH: Refer to the Memecoin index
The Meme Coin Index launched by MarketVector tracks the performance of the six largest meme tokens in terms of market capitalization, including $DOGE, $SHIB, $PEPE, $FLOKI, $WIF, and $BONK, representing the overall performance of meme coins.
A comparison shows that meme coins have been performing exceptionally well since the beginning of the year, with a 120% increase, surpassing the 52% increase of BTC and the 37% increase of ETH.
Summary & Risk Warning
Combining the Dumbbell Strategy with the above indicators, it is evident that BTC and ETH are indeed deserving of being considered safe assets in the current market conditions, with high market dominance.
Especially BTC, which is even stronger than ETH. From the comparison of returns, Meme coins still represent high-risk high-reward assets. On the other hand, most altcoins are still relatively weak overall, offering fewer opportunities. It’s okay to allocate fewer chips to them.
It is important to note the risks involved in cryptocurrency asset allocation. It is a challenging task that cannot be simplified by just using a few indicators.
Nevertheless, always remember that taking risks only makes sense when most of your funds are secure. Those who have experienced multiple bull and bear cycles will surely understand this deeply! As the old saying goes, as long as there are green mountains, there will always be firewood to burn.
