Market Wrap: Altcoins Underperform as Bearish Sentiment Rises

Bitcoin (BTC) declined from a high of $30,658 during the New York trading day as buyers remained on the sidelines. The cryptocurrency is up by 3% over the past week, but has struggled to outperform a majority of alternative cryptos (altcoins).

Internet Computer’s ICP token pared Thursday’s gains and declined by 10% over the past 24 hours, compared with BTC’s flat performance over the same period. Avalanche’s AVAX token and Solana’s SOL token were down by 4% on Friday, while Polkadot’s DOT token rose by 4%.

Sentiment among crypto traders remains bearish, evidenced by a downtick in the bitcoin Fear & Greed Index over the past few days. The index moved deeper into “extreme fear” territory, similar to what occurred in January of this year, which preceded an upswing in BTC’s price.

Still, technical indicators suggest limited upside for bitcoin, particularly at its 50-day moving average, currently at $34,177.

In traditional markets, the S&P 500 and Nasdaq declined on Friday as the 10-year Treasury yield ticked higher. Gold was also lower on Friday, and is down by 5% over the past three months, compared with a 25% loss in BTC and a 4% dip in the S&P 500 over the same period.

Latest prices

Bitcoin (BTC): $29,548, −2.35% 

Ether (ETH): $1,749, −3.87% 

●S&P 500 daily close: 4,108, −1.64% 

●Gold: $1,854 per troy ounce, −0.69% 

●Ten-year Treasury yield daily close: 2.96%

Short-term upswing?

Some analysts expect crypto prices to stabilize over the short term, which typically occurs after periods of significant price declines.

“For BTC and ETH, the current drawdown is now identical to the 2020 [COVID-19] drawdown. It is possible that we see a short-term bounce from these oversold levels,” QCP Capital, a Singapore-based crypto trading firm wrote in a Friday report. A similar peak-to-trough decline occurred in the S&P 500 and Nasdaq, which could point to a short-term relief bounce in speculative assets.

Still, in 2017, it took roughly one year for BTC and ETH to reach a trough, which means upside could be limited until an absolute bottom in price occurs, according to QCP.

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Relative drawdowns (QCP Capital)

Bitcoin dominance intact

So far, some crypto traders have been reducing their exposure to risk. Typically, during down markets altcoins decline by more than bitcoin because of their greater risk profile. As a result, bitcoin’s market cap rises relative to the total crypto market cap (dominance ratio) during bear markets.

The chart below shows a recent breakout in the BTC dominance ratio, similar to what occurred in 2018. That means a reversal of the risk-on environment over the past two years is underway. An increase in the dominance ratio toward 50% could offer some relief for altcoins relative to BTC, albeit within the context of a confirmed bearish cycle for cryptocurrencies.