Altcoins
Why Buying Altcoin May Need a Break
In a recent trend evident on crypto charts, Bitcoin’s dominance is once again on the rise, prompting some traders and investors to rethink their strategies regarding altcoins. Deep data analysis, coupled with insights from prominent crypto analysts, reveals several compelling reasons to exercise caution when considering an altcoin purchase right now.
Historical precedence
Bitcoin’s market dominance – its market capitalization relative to the entire cryptocurrency market – has always been a leading indicator of market sentiment. If Bitcoin dominance increases, it means sentiment towards altcoins is decreasing.
In an analysis today, renowned analyst Rekt Capital warned of this flashing signal, it sharing the following table and tweeted:
BTC Dominance has left the “retest zone”. We are currently entering a continuation of the uptrend that could see BTC Dominance revisit the 58% mark for the first time in years.
Over the past five months, Bitcoin’s dominance has seen consolidation within the “retest zone” after seeing a rise of over 10% since the start of the year. BTC’s dominance retreated amid its retest, allowing altcoins to gain momentum for a short period of time. But, as in mid-2018, BTC is now above the resistance zone, suggesting that 58% could be the next target. Notably, BTC dominance peaked at over 71% during the last run in 2021.
Altcoin Liquidity Issues
When Bitcoin dominance increases, it often corresponds to reduced liquidity in the altcoin market. Reduced liquidity can lead to increased volatility, with price fluctuations potentially wiping out a significant portion of invested capital. For investors with a risk-averse profile, such conditions may not be ideal.
Additionally, recent interest appears to be focused primarily on Bitcoin. In times of capitulation and boredom, investors often seek the security and liquidity provided by Bitcoin rather than altcoins. A driving factor in this is that the potential catalysts for the crypto market are specific to Bitcoin, as reduce by half and the potential approval of a spot ETF. As these events unfold, Bitcoin will likely continue to eclipse altcoins.
More Insights from Top Crypto Analysts
Joshua Lim, former head of derivatives at Genesis Trading and former head of trading strategy at Galaxy Digital, recently weighed on the ongoing fight between Bitcoin and Ethereum. “The ETH/BTC spot ratio is currently a major battleground,” Lim noted, adding that the BTC/USD rally was effectively suppressing Ethereum. He highlighted a significant bias in options volume in favor of Bitcoin versus Ethereum, highlighting the decline in interest from Ethereum allocators (options volume is skewed 5:1 in favor of BTC) .
Meanwhile, Miles Deutscher, a renowned crypto analyst, Free a condensed perspective on prevailing market sentiment. “We are in the most difficult phase of the market…where temporal capitulation is really starting to set in,” Deutscher remarked. He further cautioned retail players who have walked away from the market, suggesting that this may be an inopportune time to do so.
Deutscher added: “Accept that BTC is likely to take the lead in the early stages of the bull run… it is not wise to fade BTC during this period. » He recommended a “top-down approach to the market,” emphasizing a strategy that starts with the fundamental assets, Bitcoin and Ethereum, before exploring other altcoins.
At press time, BTC was trading at $28,585.
Featured image from iStock, chart from TradingView.com