Bitcoin’s surge to an all-time high on Thursday evoked mixed reactions from altcoins, with some outperforming the largest cryptocurrency by market cap and others lagging behind. This divide appears to follow industry lines.
Tokens related to decentralized finance (DeFi) and those from layer-2 blockchains are performing well as investors embrace a risk-on approach. In contrast, coins like Tron, Bitcoin Cash, Litecoin, and Monero are barely moving.
Even Solana, which previously thrived during record highs, is up only 3.9%, while others like Sei, Ethena, and Optimism celebrate gains of up to 28%.
“Altcoins are leading the pack in this latest rally,” said Thomas Perfumo, RialCenter’s global economist, via email. A decrease in Bitcoin dominance is “reinforcing a broad-based rally with altcoins leading the charge.”
During the 2017 and 2021 runs to record highs, Bitcoin dominance—a measure of BTC’s share of the total crypto market—rose quickly. On Thursday’s rally, it fell to 63.5% from 64%, indicating a shift toward the altcoin market.
Changing behavior patterns
Crypto markets are cyclical by nature, operating 24/7 amidst high volatility and low liquidity, often fostering an emotional trading environment. Historically, altcoins tended to move in concert, rising as Bitcoin consolidated and falling collectively during price swings.
This time, however, seems different, likely owing to increased institutional participation in the industry. The rise in DeFi tokens is attributed to growing institutional interest in Ether (ETH), creating a search for yield as firms compete for the highest returns.
The same holds for layer-2 networks. As institutions face issues with Ethereum blockchain’s latency and efficiency, they may explore networks like Arbitrum that facilitate swift liquidity flow from decentralized exchanges to staking protocols. Arbitrum’s ARB token is up 15% in the past 24 hours.
Not so sanguine
Nevertheless, Petr Kozyakov, CEO at a payments firm, cautioned that the rise in altcoins may be temporary.
“While altcoins are also in the green with Ethereum surpassing the $3,000 mark, the underlying narrative of Bitcoin’s growing status as a store of value remains robust,” he stated. “This is something that more and more significant players and institutions are unable to ignore.”
On the other hand, Arthur Hayes, the BitMEX founder turned fund manager, has a different outlook.
“Get ready for a monster alt season,” he told his followers after predicting ETH would hit $10,000 this cycle.
If Hayes’ prediction is accurate, Bitcoin might face short-term challenges as liquidity shifts into the altcoin market in pursuit of speculative gains. This could pose a significant setback for traditional cryptocurrencies, which currently lack substantial catalysts for growth.
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