Crypto traders have experienced the ups and downs of four previous crypto bull markets. With Bitcoin (BTC) recently doubling in value from its recent lows, we have now entered the first phase of the fifth bull market and stand at a pivotal juncture. So far, Bitcoin has been dominant, but as this bull market progresses, it's likely that altcoins will start to outperform. Confidence among crypto traders is growing, indicating that this bull market still has many months ahead.

What's changing?

After several quarters of declining revenues for the Ethereum (ETH) ecosystem, there are signs that revenues are stabilizing after hitting rock bottom. This could be seen as a potential turning point for ETH. While revenues have only returned to the range of $30 million in weekly fees seen in the summer of 2023, the shockingly low figure of $12.1 million during the week of October 9 may be behind us. As long as weekly Ethereum fees remain above $30 million, a tactical bullish trade may be justified.

In the past, we identified the critical support level for ETH as $1,550, and a break below this level could have led to a target of $1,200. Although ETH briefly dipped below $1,550 on two occasions, it ultimately served as a crucial support level that helped establish a new uptrend. The recent double breakout above the $1,700 level has provided a trading signal, and traders should consider staying long on ETH as long as prices remain above $1,800.

Over the past week, Bitcoin's dominance seems to have peaked at 53.4%, and its decline to 51.8% indicates that traders are taking on more risk through ETH or other altcoins. Trading volume has also diversified. While Bitcoin traded at up to three times the volume of ETH in mid-October, this ratio has now dropped to just two times. This suggests that traders are increasingly trading ETH, supporting the idea that altcoins may outperform.

The Fear & Greed Index, based on the ETH/BTC ratio, suggests that the crypto market is transitioning into an 'alpha' environment, in contrast to the previous summer when 'macro' themes dominated, primarily centered around the potential approval of the BlackRock Bitcoin ETF. With the index surpassing the 50% mark, it indicates that traders should consider adding more alpha (idiosyncratic trades) to their portfolios.

Historically, options for Ethereum have traded at 1.0x to 1.7x the realized volatility of Bitcoin, and purchasing Ethereum at 1.0x volatility has proven to be a solid mean-reversion trade. The realized volatility spread has even narrowed to 0.8x while the implied volatility spread stands at 1.0x, with both ETH and Bitcoin at-the-money implied volatility trading at 58%.

Furthermore, the perpetual futures funding rate for both Bitcoin and Ethereum is currently at elevated levels, indicating a fear of missing out (FOMO) sentiment. While the funding rate remained marginally positive throughout the year and stayed within the 5-10% range, it has recently shifted higher into the 10-20% range over the last two weeks. This FOMO sentiment could easily spill over into the altcoin market and support a more bullish view on undervalued altcoins.

Markus Thielen is the head of research at DeFiOnTarget, an institutional crypto research firm, and the author of the book 'Crypto Titans: How Trillions Were Made and Billions Were Lost in the Cryptocurrency Markets.' He frequently shares insights on Twitter under DeFiOnTarget (X).