Module 11: Sector and Narrative Analysis
Measuring Sector Performance and Rotation
Chapter 12 of 13 · about 5 minutes
12.1 Up 30%, but losing
Mint was pleased: a Layer 1 token had risen 30% in a month. Then Hash pointed out that Bitcoin had risen 50% over the same month.
"Measured in bitcoin, your token fell," said Hash. "If you'd just held Bitcoin, you'd have more money. In crypto, the right question usually isn't 'did it go up?' It's 'did it beat the alternative?'"
12.2 Relative strength
Relative strength compares an asset's performance with a benchmark. In crypto, the most common benchmarks are Bitcoin and Ether.
Performance against BTC = (1 + token's return) ÷ (1 + Bitcoin's return) − 1
| Return | |
|---|---|
| Token | +30% |
| Bitcoin | +50% |
| Token measured against BTC | 1.30 ÷ 1.50 − 1 ≈ −13.3% |
Many charting tools let you view a token priced in BTC or ETH directly, as a pair such as TOKEN/BTC. A rising TOKEN/BTC chart means the token is outperforming Bitcoin.
| Benchmark | When to use it |
|---|---|
| BTC | Most tokens; the default crypto benchmark |
| ETH | Ethereum ecosystem tokens, Layer 2s, DeFi on Ethereum |
| Sector index | Comparing a token with its own sector |
| Stablecoins or cash | Measuring absolute returns |
12.3 Sector indices
To track a sector, analysts build indices: baskets of tokens representing the sector. How they're weighted matters a great deal.
Example: a three-token sector over one month.
| Token | Market cap | Return |
|---|---|---|
| A | $10 billion | +10% |
| B | $1 billion | +50% |
| C | $0.5 billion | +100% |
| Weighting | Calculation | Sector return |
|---|---|---|
| Market cap weighted | (10 × 10% + 1 × 50% + 0.5 × 100%) ÷ 11.5 | ~17.4% |
| Equal weighted | (10% + 50% + 100%) ÷ 3 | ~53.3% |
The cap-weighted index is dominated by the largest token. The equal-weighted index shows that smaller tokens rallied strongly. Both are useful: cap-weighted shows where most of the money is; equal-weighted shows how broad the move is.
Many data sites publish category performance. Check how their indices are weighted before drawing conclusions.
12.4 Breadth
Breadth measures how many tokens are participating in a move.
| Breadth measure | What it shows |
|---|---|
| Share of top 100 tokens above their 50-day moving average (Module 4, Chapter 8) | How broad the uptrend is |
| Share of tokens outperforming BTC over 30 or 90 days | Whether rotation away from BTC is happening |
| Number of tokens making new highs versus new lows | Overall market health |
| Pattern | Possible meaning |
|---|---|
| BTC rising, breadth narrow | Bitcoin-led market; most tokens lagging (rotation phase 1) |
| BTC rising, breadth widening | Rotation spreading to other tokens |
| Very broad, euphoric breadth | Late-cycle speculation possible |
| Prices rising, breadth falling | Rally narrowing, possibly weakening |
12.5 Rotation indicators
Bringing together signals from this and earlier modules:
| Indicator | What rising suggests | Module |
|---|---|---|
| Bitcoin dominance | Money concentrating in Bitcoin | Module 1, Chapter 10 |
| ETH/BTC ratio | Money rotating toward Ether | Module 4, Chapter 15 |
| Sector index vs BTC | Sector outperforming Bitcoin | This chapter |
| Share of trading volume by sector | Where traders' attention is going | This chapter |
| Funding and open interest in sector tokens | Leveraged speculation building in that sector | Module 7, Chapters 7 and 9 |
| Stablecoin supply shifting between chains | Capital moving to particular ecosystems | Module 6, Chapter 8 |
| New token launches by sector | Narrative heat (Chapter 2) | This module |
| Social attention by sector | Narrative stage | Chapter 2 |
12.6 Mint's rotation dashboard
Mint built a weekly table:
| Indicator | 4-week change (illustrative) | Reading |
|---|---|---|
| Bitcoin dominance | Down 2 points | Some rotation away from BTC |
| ETH/BTC | Up 8% | Ether outperforming |
| DeFi index vs BTC | Up 12% | DeFi gaining attention |
| RWA index vs BTC | Up 3% | Steady |
| AI index vs BTC | Down 15% | Narrative cooling |
| Memecoin volume share | Rising fast | Speculation increasing |
| Breadth (top 100 above 50-day average) | 72% | Broad participation |
Mint's summary: "Money is rotating from Bitcoin into Ether and DeFi, AI is cooling, and memecoin activity is heating up. That looks like a mid-to-late rotation phase. I'll focus research on DeFi fundamentals, avoid chasing memecoins, and watch for breadth to peak."
"Good," said Hash. "You described what's happening without pretending to know exactly what happens next."
Chapter 12 · Measuring sector performance
A dashboard of six four-week readings against Bitcoin: BTC dominance down 2 points, ETH/BTC up 8%, DeFi index up 12%, RWA index up 3%, AI index down 15%, and memecoin volume share rising fast. Read together, they suggest money rotating from Bitcoin toward Ether and DeFi while speculation heats up.
12.7 Pitfalls
Survivorship in indices. Sector indices may drop failed tokens and add new ones, making historical performance look better than an investor's actual experience.
Short windows. A sector can lead for a month and lag for a year. Check several timeframes.
Chasing the leader. By the time a sector tops the performance table, much of its move may be done (Chapter 2).
Ignoring liquidity. Small sectors can post huge returns that are hard to capture with real money.
12.8 Try it yourself
Pick three sectors. For each, calculate its performance against BTC over 30 days, 90 days, and one year, using a data site's category indices. Note whether each index is cap-weighted or equal-weighted. Then check Bitcoin dominance and ETH/BTC over the same periods, and describe the rotation picture in two sentences.
Key takeaways from this chapter
- Measure performance relative to benchmarks, usually BTC or ETH, not just in dollars.
- Performance against BTC equals (1 + token return) ÷ (1 + BTC return) − 1.
- Cap-weighted indices show where money is; equal-weighted indices show how broad a move is.
- Breadth measures how many tokens participate, revealing narrow or broad markets.
- Rotation indicators include dominance, ETH/BTC, sector indices, volume share, funding, stablecoin flows, launches, and attention.
- A weekly rotation dashboard helps describe the market without predicting it.
- Beware survivorship in indices, short windows, chasing leaders, and illiquid sectors.