Recent data from Capriole Investment’s crypto speculation index indicates that the speculative excess prevalent in the first quarter of the year has dissipated. This suggests a potential reset in the Bitcoin bull market, paving the way for renewed bullish price action for the leading cryptocurrency by market value.

Speculative Excess Dissipates

The crypto speculation index measures the percentage of alternative cryptocurrencies (altcoins) with 90-day returns greater than Bitcoin. This index has stabilized below 10%, a significant drop from the January high of nearly 60%. During the first quarter, Bitcoin reached record highs above $70,000 but has since cooled to around $58,000.

According to data from Coingecko, there are more than 14,800 altcoins in existence. Many of these coins are illiquid and struggle to prove their use cases, making them primarily speculative instruments. The performance of altcoins relative to Bitcoin is often seen as a sign of speculative mania, with volumes closely tied to Google Trends, an indicator of retail investor interest.

Market Correction and Stability

Speculative washouts act as corrective mechanisms, realigning asset prices with fundamentals and tempering excessive speculation. These corrections create a healthier market environment in the long run. The crypto market has experienced similar patterns since 2019. A below-10% speculation index has coincided with the beginnings of sharp Bitcoin rallies, as seen in the first half of 2019, late 2020, and the second half of 2023.

Potential for Renewed Bullish Action

The recent decline in the speculation index suggests that the excessive optimism seen earlier in the year has been cleared. This reset sets the stage for a potential renewal of the Bitcoin bull market. Historically, periods of reduced speculative activity have been followed by significant Bitcoin price rallies.