Today we will share a strategy that can earn a lot of money and avoid losing everything: the Dumbbell Strategy.
We have analyzed the performance of the following cryptocurrencies using indicators:
BTC, the eternal king: BTC.D Index
ETH is lagging behind BTC in this phase: ETH/BTC exchange rate
Overall weakness in altcoins: (1) Altseason Index (2) Market capitalization of altcoins
Meme coins are high-risk, high-reward assets that outperform BTC and ETH: Memecoin Index
What is the Dumbbell Strategy?
The Dumbbell Strategy, mentioned by Taleb in “Antifragile,” involves adopting a conservative strategy in one field and an open strategy in another field, abandoning the middle ground. Simply put, it is “mostly conservative, partly aggressive.”
In the cryptocurrency market, this means investing the majority of assets in safer assets like BTC and ETH, and a smaller portion in high-risk assets like Meme coins, while minimizing participation in most altcoins.
This strategy allows for stability and preservation of capital in the highly volatile cryptocurrency market, while also providing an opportunity for high returns through high-risk assets like Meme coins.
Next, let’s objectively examine the performance of BTC, ETH, most altcoins, and Meme coins using some indicators.
BTC, the eternal king: Refer to BTC.D Index (Bitcoin Dominance)
The Bitcoin Dominance Index reflects the market capitalization of Bitcoin and is often used to determine whether the altcoin season has begun. From the chart, we can see that during the previous bull market in 2021, the BTC.D Index was significantly declining.
The logic behind this is as follows: BTC.D Index decline ➡️ Decrease in Bitcoin’s dominance ➡️ Increased risk ➡️ Altcoins regain market position ➡️ Altcoin surge (and vice versa)
Currently, we are still in the Bitcoin season, as the index has been rising since the beginning of this year and reached 56% on July 26. The performance of altcoins is still not as good as Bitcoin, indicating Bitcoin’s dominance.
ETH is lagging behind BTC: Refer to ETH/BTC exchange rate
Generally, a higher ETH/BTC exchange rate indicates a smaller price difference between the two, indicating a strong performance by ETH. Conversely, a smaller exchange rate suggests a larger price difference and relatively weaker performance by ETH.
This indicator can also be used to gauge market interest in altcoins. If the ratio starts outperforming BTC, it may be a sign of funds flowing into altcoins.
Currently, the ETH/BTC exchange rate is still relatively low, indicating weak performance by ETH. Despite the approval of ETFs, Ethereum has not been able to reverse the trend. However, due to its low position, those with confidence in ETH can consider gradually building positions and waiting for future price increases.
Overall weakness in altcoins: Refer to (1) Altseason Index
The Altseason Index tracks the sentiment of the altcoin market by measuring the proportion of the top 50 altcoins that outperform Bitcoin. A value above 75 indicates the altcoin season, while a value below 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. Only in late January this year did the index exceed 75, but it lasted for only half a month. Compared to the period from the end of March to the end of June 2021 when the index remained above 75 for three months, it does not qualify as a true altcoin season.
Overall weakness in altcoins: Refer to (2) Market capitalization of altcoins
This indicator, the Crypto Total Market Cap Excluding BTC & ETH, reflects the overall situation of funds flowing into the altcoin market, excluding the market capitalization of BTC and ETH.
After a significant increase in altcoin market capitalization at the beginning of the year, it did not continue the trend and has fluctuated during these months of volatile market conditions. Currently, there are no clear signals of a breakthrough, indicating overall weakness in altcoins.
Meme coins are high-risk, high-reward assets that outperform BTC and ETH: Refer to Memecoin Index
The Meme Coin Index, introduced by MarketVector, tracks the performance of the six largest meme tokens in terms of market capitalization.
The main components include $DOGE, $SHIB, $PEPE, $FLOKI, $WIF, and $BONK, representing the overall performance of Meme coins.
A comparison shows that Meme coins have performed exceptionally well since the beginning of this year, with a 120% increase, surpassing the 52% increase in BTC and the 37% increase in ETH.
Summary & Risk Warning
In line with the Dumbbell Strategy, the above indicators show that BTC and ETH are indeed deserving of their status as safe assets with high market share.
BTC, in particular, 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 relatively weak, offering fewer opportunities, but it’s okay to allocate fewer chips to them.
Here, we also want to remind you of the risks. Allocating cryptocurrency assets is a challenging task that cannot be accomplished simply by using a few indicators.
However, regardless of the circumstances, always remember that taking risks is only meaningful when the majority of your capital is secure. Those who have experienced multiple bull and bear cycles can surely relate. As the saying goes, as long as there are green mountains, there will be no shortage of firewood.
