The crypto market is making a strong comeback and could face some potential headwinds in the near term. In the top 10 cryptos, Bitcoin was outperformed by the altcoin sector along with Ethereum and Binance Coin, and Polkadot still retains some of its gains from last week.
This shows a change in the dynamics of the crypto market as investors appear to be regaining confidence in the sector and moving away from Bitcoin. As a result, the number one crypto by market capitalization seems to be lagging behind, which is reflected in Bitcoin’s declining dominance.
As seen below, this metric has been trending sideways since May 2022 after seeing a small upward push. In 2021, as Ethereum and other altcoins reached new all-time highs, Bitcoin’s dominance dropped to its current levels.
If current trends continue, with Bitcoin lagging the altcoin sector, the metric could retest its yearly lows and drop from 43% to the 30% high zone, which could give altcoins more room to reclaim territory. previously lost.
According to a report by Arcane Research, their crypto indices for altcoins showed positive returns in August. As seen below, the research firm records profits of 9%, 7% and 5% for its large, mid and small cap index while Bitcoin registers 2% profits.
The latter shows the largest increase as risk exposure tends to rise, and stablecoin market shares follow a similar trajectory as Bitcoin dominance. Arcane Research noted:
With bitcoins underperforming altcoins, bitcoin dominance has dropped from a peak of 47% in mid-June to 40.5% now. As market sentiment improved, traders were more interested in gaining exposure to altcoins than bitcoin.
In the crypto market, altcoins may continue to dominate in the short term as the price of BTC moves sideways. Thus, investors looking for higher yields might consider turning to large-to-mid-cap and small-cap cryptocurrencies if they have a higher tolerance for risk.
Why the Crypto Market Sees a Short-Term Price Drop
Despite a positive month for the majority of the crypto market, most cryptocurrencies are seeing price declines on short timeframes. This is due to the potential short-term impact of macro-economic 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 inflation for the US dollar, which has trended higher and settled at its highest level in 40 years.
Thus, the Fed raised its interest rates and modified its monetary policy in an attempt to slow inflation. If July’s CPI print hints at the success of these attempts, the financial institution might be inclined to act less aggressively.
This could lead to stronger bullish momentum on risky assets, such as Bitcoin and the crypto market. In the meantime, market players seem to be sidelined and waiting for tomorrow’s outcome. A pseudonymous merchant said the following on the above:
IPC relationship with Bitcoin. Now that gasoline prices are falling, we will see a decline or a continuation/cooling of inflation. This will restore investor confidence. The Fed rate cut to 50 basis points at the next FOMC meeting, showing optimism to investors. Don’t get rattled before you get on.