Crypto Rotation Strategies: Using Bitcoin Dominance, ETH/BTC, and Sector Indexes — A Canadian Trader’s Playbook

Crypto markets rarely move in unison. Money rotates: first into Bitcoin, then into Ethereum and large caps, then into smaller altcoins and niche sectors—before cycling back to safety or stablecoins. For Canadian and global traders, mastering this rotation can mean catching the most powerful waves while avoiding the chop. This guide shows you how to use Bitcoin dominance, the ETH/BTC ratio, and sector indexes to build a rules-based crypto rotation strategy that is actionable on Canadian crypto exchanges. You’ll learn signal design, execution tips, risk management, and compliance considerations specific to Canada, so you can trade confidently without guesswork or hype.

What Is Crypto Rotation and Why It Matters

Rotation is the systematic flow of capital between market segments. In crypto, the classic sequence is:

• Risk-off or early bull: Bitcoin outperforms as investors seek liquidity and perceived safety.
• Mid-cycle: Ethereum and top large caps catch up as confidence broadens.
• Late-cycle “alt season”: smaller caps, sector narratives (AI, DeFi, gaming, L2s) outperform.
• Risk reset: capital rotates to Bitcoin, stablecoins, or fiat; volatility compresses or turns down.

Recognizing where we are in this cycle helps align your portfolio with the prevailing risk appetite. Instead of forcing trades in a cold sector, you intentionally tilt toward the part of the market with relative strength—while maintaining risk controls.

Core Indicators for Rotation

1) Bitcoin Dominance (BTC.D)

Bitcoin dominance measures Bitcoin’s market cap share versus the total crypto market cap. Rising dominance generally signals capital concentrating into Bitcoin (risk-off or early bull). Falling dominance suggests broadening risk-on conditions that can fuel altcoin outperformance. The absolute level and the trend both matter. For example, a rising 50-day moving average (50-DMA) on BTC.D often lines up with periods when altcoins lag and Bitcoin offers cleaner trend-following opportunities.

2) ETH/BTC Ratio

The ETH/BTC cross compares Ethereum’s strength versus Bitcoin. When ETH/BTC is trending up and above key moving averages (e.g., 100-DMA or 200-DMA), the market is often ready to expand risk beyond Bitcoin, favoring ETH and, by extension, higher-beta altcoins. When ETH/BTC trends down, it often pays to either overweight BTC or reduce overall risk.

3) Total Market Cap and Alt Market Cap Indexes

Total crypto market cap, alt market cap (ex-BTC), and alt ex-BTC-and-ETH indexes are useful breadth gauges. Traders often monitor the slope of their 50-DMA and 200-DMA and whether price is above or below a long-term anchored level (e.g., year-to-date anchored VWAP). These signals help confirm whether a move in BTC.D or ETH/BTC is part of a sustained rotation or just noise.

4) Stablecoin Supply and Flows

When stablecoin aggregate supply is expanding and net exchange inflows to risk assets are rising, it can support a risk-on phase. Conversely, shrinking stablecoin supply or rising redemptions may precede risk-off conditions. While you don’t need precise on-chain analytics to rotate effectively, observing the direction of stablecoin availability can sharpen timing.

Designing a Rotation Dashboard

Build a simple, repeatable dashboard so decisions become systematic rather than emotional. Here’s a blueprint:

1. Trend Layer: Plot BTC.D, ETH/BTC, and your chosen market cap indexes with 50/200-DMAs.
2. Breadth Layer: Track the percentage of top 100 coins above their 50-DMA and 200-DMA. Rising breadth confirms risk-on.
3. Momentum Layer: Use RSI or rate-of-change (ROC) to catch inflections and avoid chasing exhausted moves.
4. Risk Layer: Monitor realized volatility (e.g., 20-day) and set position sizes using volatility targeting or ATR-based stops.
5. Sector Layer: Create watchlists for L1s, L2s, DeFi, AI, gaming, privacy, and oracles. Rotate within sectors once a top-down green light triggers.

Rules-Based Rotation Strategies

Strategy A: Bitcoin-First With Alt Add-Ons

This conservative approach assumes Bitcoin is the primary trend vehicle. You hold a core BTC position and only add ETH and select large caps when signals align.

• Entry: Go 60–80% BTC when BTC.D 50-DMA slopes upward and ETH/BTC trades below its 200-DMA.
• Add-On: Allocate 10–30% to ETH when ETH/BTC reclaims and holds above its 100-DMA for at least 3–5 daily closes.
• Alts: Only add 0–10% to top-tier large caps when the alt market cap index is above its 200-DMA and breadth >60%.
• Exit/De-risk: If ETH/BTC loses its 100-DMA or BTC.D turns up strongly (bullish cross on 50/200-DMA), rotate back toward BTC and/or stablecoins.

Strategy B: Tri-Modal Regime (BTC / ETH / Alts)

Split your portfolio into three buckets and let signals dictate weights. This is popular with Canadian traders who prefer structure and written rules.

• BTC Regime: BTC.D 50-DMA rising + ETH/BTC below 200-DMA. Target 60–70% BTC, 20–30% ETH, 0–20% Alts.
• ETH Regime: BTC.D flat/down + ETH/BTC above 200-DMA. Target 30–40% BTC, 40–50% ETH, 10–30% Alts.
• Alt Regime: BTC.D falling + strong breadth (>60%) + Alt cap index above 200-DMA. Target 20–30% BTC, 30–40% ETH, 30–50% Alts.

Always layer stop-losses, maximum single-position risk (e.g., 0.5–1.0% of equity), and a daily max drawdown limit (e.g., 2–3%) so a bad session doesn’t spiral.

Strategy C: Sector Rotation With a Safety Valve

After top-down confirmation, rotate among sectors using relative strength over a lookback window (e.g., 20 days) while enforcing a safety valve that pulls risk back to BTC or stablecoins if conditions deteriorate.

1. Confirm top-down risk-on via BTC.D downtrend and ETH/BTC above 100/200-DMA.
2. Rank sectors by 20-day performance; pick top 2–3 sectors.
3. Within each sector, select leaders breaking above their 50-DMA with rising volume.
4. Safety valve: If breadth drops below 50% or ETH/BTC loses the 100-DMA, cut sector exposure by half or rotate to BTC/stablecoins.

Risk Management and Execution

Position Sizing That Survives Volatility

Crypto’s volatility is a feature, not a flaw—if you size correctly. Two practical methods:

• ATR Stops: Set stops 2–3x ATR(14) from entry; size so a hit costs ≤0.5–1.0% of equity.
• Volatility Targeting: Target an annualized volatility (e.g., 20–30%). Increase weight when 20-day realized vol is low; decrease when it spikes.

Order Types and Slippage Control

On Canadian crypto exchanges and global venues accessible to Canadians, use order types that reduce noise and slippage:

• Post-only/limit to avoid taker fees during entries into liquid majors like BTC and ETH.
• Reduce-only on exits for clarity when scaling out of volatile alt positions.
• OCO (One-Cancels-the-Other) to pair take-profit and stop-loss without babysitting.
• Staggered scaling on altcoins to average into strength while capping per-coin drawdown.

Canadian Context: Platforms, Compliance, and Taxes

Choosing Platforms as a Canadian Trader

Canada’s regulatory framework expects crypto trading platforms serving Canadians to register with securities regulators. Many Canadian traders start with locally focused platforms such as Bitbuy or Wealthsimple Crypto for spot BTC and ETH, and may add other compliant platforms with deeper order books for diversified exposure. Always verify a platform’s current regulatory status with provincial regulators or national registries and ensure it offers the pairs and order types your strategy requires.

FINTRAC and Record-Keeping

Crypto trading platforms operating in Canada are typically treated as Money Services Businesses and must comply with Anti-Money Laundering and Know-Your-Customer requirements overseen by FINTRAC. Practically, this means you should expect standard identity verification and transaction monitoring. From a trader’s perspective, this is helpful: clean records and verifiable histories support tax reporting and reduce account friction.

CRA Tax Considerations for Rotation

The Canada Revenue Agency treats most crypto as a commodity for tax purposes. Profits from rotation may be taxed as capital gains or as business income depending on the nature of your activity. Frequent, organized trading with an intention to profit may be characterized as business income. Keep meticulous records of every disposition (trade), including timestamps, quantities, proceeds of disposition, adjusted cost base, and fees—all converted to CAD on the transaction date. This is essential for accurate reporting and audit readiness.

• Capital vs. business income: Your trading pattern and intention matter. When in doubt, consult a qualified tax professional.
• Foreign exchanges: If at any point you hold specified foreign property with a total cost amount over CAD 100,000, review whether additional reporting (e.g., certain foreign asset disclosures) applies to your situation.
• CAD conversions: Report gains and losses in CAD. Track FX rates for trades executed in USD stablecoins.
• Staking/earn products: If you earn rewards while rotating, those may be income on receipt; track them separately from trading gains.

Putting It All Together: A Practical Week-by-Week Playbook

Weekly Routine

1. Top-Down Scan: Review BTC.D trend, ETH/BTC vs. 100/200-DMA, total/alt market cap trends.
2. Breadth Check: If >60% of the top 100 are above their 50-DMA, consider broadening risk; if <40%, de-risk.
3. Sector Ranking: Compute 20-day returns; shortlist top three sectors.
4. Leader Shortlist: For each top sector, pick 2–3 coins breaking above the 50-DMA with rising volume.
5. Risk Budget: Size positions so no single trade risks more than 1.0% of equity and your portfolio stays within a volatility target.

Daily Routine

1. Recheck ETH/BTC and BTC.D for sudden regime shifts.
2. Review open positions: trailing stops, OCO orders, and partial profit targets.
3. Scan for fresh breakouts within ranked sectors; avoid late entries with extended RSI.
4. Journal every trade: thesis, entry/exit, risk, outcome, and lessons learned.

Case Study Templates (Educational)

Template 1: Early Bull, Bitcoin Leads

Scenario: BTC.D’s 50-DMA turns up; ETH/BTC slips below its 200-DMA. You tilt to 70% BTC, 20% ETH, 10% alts. Stops set at 2.5x ATR. As BTC trends cleanly, you harvest partial profits on strength and roll stop-losses up. You avoid forcing alt entries until ETH/BTC stabilizes. Result: smoother equity curve with fewer whipsaws.

Template 2: Expansion to ETH and Large Caps

Scenario: BTC.D flattens and ETH/BTC reclaims its 100- and 200-DMAs. Breadth rises above 60%. You rebalance to 35% BTC, 45% ETH, 20% large-cap alts. For entries, you require a close above the 50-DMA with rising volume. You use OCO orders to define risk and reward. Result: you participate in the broadening move without overexposing to the tail of the market.

Template 3: Alt Season With a Safety Valve

Scenario: BTC.D trends down, ETH/BTC surges, and alt market cap lifts above the 200-DMA. You rotate to 25% BTC, 35% ETH, 40% alt basket distributed among top-ranked sectors. Safety valve rule: if breadth ducks below 50% or ETH/BTC loses the 100-DMA, you cut alt exposure in half and raise cash or pivot back to BTC. Result: you capture upside while maintaining an exit plan for inevitable shakeouts.

Common Pitfalls and How to Avoid Them

• Chasing late: Don’t buy the third or fourth extension above the 50-DMA. Wait for pullbacks to anchored VWAP or the 20-DMA.
• Ignoring the cross (ETH/BTC): If ETH/BTC is falling, alt outperformance is less likely; keep sizes small.
• Over-diversifying: Ten small positions can be harder to manage than three well-researched leaders; each deserves an exit plan.
• No risk caps: Always define per-trade risk and a daily max drawdown.
• Exchange risk blindness: Spread assets across reputable, compliant platforms; use strong account security and consider self-custody for longer holds.

Building Your Own Sector Indexes

If you can’t find ready-made sector indexes that match your needs, create your own. For each sector, equally weight 5–10 liquid constituents or use a simple momentum-weighting scheme (e.g., weight by 30-day performance capped at 25% per coin). Rebalance weekly or bi-weekly to keep weights aligned with leadership without overtrading.

• DeFi: Select established DEX, lending, and liquid staking tokens.
• L1/L2: Mix major layer-1s with prominent roll-ups.
• AI/Gaming/Oracles: Only include tokens with robust liquidity and consistent price discovery.

CAD, USD, and Stablecoin Workflow

Many Canadian traders fund accounts in CAD, convert to stablecoins for broader pairs, and occasionally convert back to CAD for withdrawals or tax-time snapshots. Keep a record of each conversion rate and all fees. If your strategy spans CAD pairs and stablecoin pairs, compare spreads and fees; sometimes the all-in cost (including FX) is lower in one venue or quote currency than another. Consistency in your workflow simplifies both execution and CRA reporting.

Frequently Asked Questions

Do I need advanced on-chain tools to rotate?

No. Price-based indicators—BTC.D, ETH/BTC, moving averages, and breadth—already capture much of the signal. On-chain and funding data can help, but keep your core system simple and testable.

How often should I rebalance?

Weekly works for most swing traders. Daily rebalancing can create churn and tax complexity. If signals flip midweek (e.g., ETH/BTC loses the 100-DMA decisively), adjust risk sooner rather than later.

What about derivatives?

Derivatives access for Canadians depends on the platform’s registration and local rules. Many traders keep rotation strategies spot-focused and use smaller, clearly defined hedges where permitted. Always verify product availability and suitability in your province or territory before using leverage.

Backtesting and Forward Discipline

Before risking meaningful capital, backtest your rotation logic across multiple market regimes. Validate basic assumptions: Does BTC.D falling plus ETH/BTC rising actually lead to outperformance for your chosen alt basket over your holding period? Use walk-forward testing to keep your rules robust. Then forward-test with small size and a written playbook. Consistency beats complexity; your edge comes from executing a clear plan repeatedly, not from predicting headlines.

Conclusion: Crypto rotation turns market structure into an advantage. By reading Bitcoin dominance, ETH/BTC, and sector indexes together—and layering disciplined risk management—you can align with the strongest trends while limiting downside. For Canadian traders, add a compliance-first mindset: choose appropriate platforms, document everything in CAD, and maintain a clean audit trail. Keep the system simple, follow your rules, and let the rotation do the heavy lifting. This article is for educational purposes only and is not financial or tax advice.