Crypto Speculation Index Slide Suggests Bitcoin Bull Market Reset

Key gauge shows that the speculative forth prevalent during the first quarter has dissipated. Bull markets are observed to stall during periods of excessive optimism, only to resume after the speculative froth has been cleared.

A key gauge of speculative excesses in the crypto markets has slid to lows not seen since early 2019, suggesting the speculative froth that built up during the first quarter of this year has dissipated.

This bodes well for bitcoin’s (BTC) price, as bull markets have stalled during periods of optimism, only to resume after the speculative excesses have been cleared out.

Capriole Investment’s crypto speculation index shows that the speculative excesses in the first quarter are now gone, with the index sliding to 9.2% on Friday from a high of nearly 60% in January.

The speculation index measures the percentage of alternative cryptocurrencies (altcoins) with 90-day returns that are higher than bitcoin’s 90-day price gains. A higher percentage indicates stronger speculative interest in altcoins relative to bitcoin.

Bitcoin, the leading cryptocurrency by market value, hit new record highs above $70,000 in the first quarter and has since cooled to $58,000. Moreover, there are over 14,800 altcoins in existence, as per data from CoinGecko.

However, the vast majority of these coins are illiquid and struggle to demonstrate their use cases. Thus, altcoins are largely viewed as speculative instruments, with their trading volumes closely tied to Google Trends, an indicator of retail investor interest.

Moreover, a altcoin outperformance relative to BTC is seen as a sign of speculative mania in the crypto markets.

Speculative washouts, however, serve as corrective mechanisms, helping realign asset prices with fundamentals and tempering excessive speculation. Thus, they set the stage for a healthier environment in the long run.

That has been the case in the crypto market. Since 2019, a speculation index below 10% has coincided with the beginnings of sharp bitcoin rallies, like those seen in the first half of 2019, late 2020 and the second half of 2023.