The crypto market is pulling back into support and could face potential headwinds in the short-term. In the crypto top 10, Bitcoin has been outperformed by the altcoins sector with Ethereum and Binance Coin, and Polkadot still retains some of its gains from the past week.
This shows a shift in crypto market dynamics as investors appear to be regaining confidence in the sector and moving away from Bitcoin. As such, the number one crypto by market cap appears to be lagging behind, reflected in a decline in Bitcoin’s dominance.
As seen below, this metric has been moving sideways since May 2022 after seeing a small boost higher. In 2021, as Ethereum and other altcoins hit new all-time highs, Bitcoin’s dominance collapsed to its current levels.
BTC dominance is moving sideways as the price of BTC lags the altcoins sector on the 4-hour chart. Source: BTC.D Trading View
If current trends continue and Bitcoin lags the altcoin sector, the metric could retest its yearly lows and fall from 43% into the high 30% area, which could give altcoins more room to reclaim previously lost territory.
According to a report by Arcane Research, their crypto indices for altcoins have shown positive returns in August. As seen below, the research firm posts 9%, 7%, and 5% gains for its Large, Mid, and Small Cap Index, while Bitcoin posts 2% gains.
Source: Arcane Research
The latter shows the largest increase as risk exposure trends upwards, and stablecoin market shares follow a similar trajectory to Bitcoin dominance. Arcane Research noted:
As Bitcoin underperforms against altcoins, Bitcoin’s dominance has plummeted from a peak of 47% in mid-June to 40.5% now. As market sentiment has improved, traders have been more interested in delving into altcoins than bitcoin.
In the crypto market, altcoins could continue to dominate in the short-term as BTC’s price moves sideways. Therefore, investors seeking higher returns might consider switching to large-to-mid-cap and small-cap cryptocurrencies if they have a greater tolerance for risk.
Why is the Crypto Market Seeing Short-Term Price Moves Down?
Despite a positive month for most of the crypto market, most cryptocurrencies see price moves down in short timeframes. This is due to the potential short-term impact of the macroeconomic factors affecting the sector.
Tomorrow the US Federal Reserve (Fed) will release the consumer price index (CPI) for July. This metric is used to measure US dollar inflation, which is on an uptrend and is at a 40-year high.
As a result, the Fed has raised interest rates and changed monetary policy to curb inflation. If July’s CPI print indicates a success in these attempts, the financial institution may be inclined to take a less aggressive stance.
This could lead to more bullish momentum in risky assets like bitcoin and the crypto market. Meanwhile, market participants seem to be standing aside and awaiting tomorrow’s outcome. As one pseudonym trader put it:
CPI relation to Bitcoin. Now that gas prices are coming down, we will see inflation fall or hold/cool off. This will restore confidence to investors. Fed rate cuts to 50 basis points at next FOMC meeting, showing investors optimism. Don’t be discouraged before the ascent.
Source: IncomeSharks via Twitter
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