For the first time in approximately a year, Bitcoin neared $11,000 on leading cryptocurrency exchanges. According to data from CoinGecko, the asset is up 10.1% in the past 24 hours — the best one-day performance in many months.
The recent strength in the Bitcoin market can be juxtaposed to the relatively poor performance of altcoins—that’s to say, cryptocurrencies that aren’t BTC. Data from CoinGecko indicates that most altcoins are up against the dollar over the past 24 hours but down against Bitcoin. Take XRP as an example: the fourth-largest cryptocurrency has gained 3.2% against the dollar in the past day, though is down 5.9% against Bitcoin. Or consider Chainlink—one of the crypto market’s hottest properties over recent months—which is actually down 4.0% in the past 24 hours.
This is not surprising: when Bitcoin trends, altcoins have been known to underperform. Luke Martin, a cryptocurrency trader featured on CNN, commented: “This is the first serious alt pullback we’ve had in a while but some things never change: $BTC rips -> alts retrace.” With Bitcoin breaking past crucial resistance levels identified by Wall Street and crypto analysts alike, altcoins may continue to underperform until BTC settles down.
Prior to this latest leg higher in the price of Bitcoin, altcoins were in control of the cryptocurrency market. From June 1 to the local highs for altcoins on July 26, Bitcoin dominance—the percentage of the cryptocurrency market comprised of BTC—fell from 66.5% to 61.6%. This is a large move for a market with an aggregate market capitalization in the hundreds of billions.
Mohit Sorout, a founding partner of Bitazu Capital, said that the strength in altcoins was a byproduct of Bitcoin’s lack of volatility during most of June and in the first half of July: “Most altcoin cycles are centered around Bitcoin volatility. When it dries up, no one wants to trade BTC. This leads to a large uptick in speculation on alts, driving their prices up—typically alts with strong narratives & large scale memetic behavior get the most volumes.”
This was best exemplified by coins pertaining to decentralized finance (”DeFi”), which experienced parabolic performances throughout June and July. This was due to an uptick in innovation in this market sector, coupled with liquidity mining incentives that promoted what has been dubbed “yield farming.” With Bitcoin now volatile as it experiences a major breakout, altcoins are relatively underperforming. As the chart above indicates, BTC dominance has surged two percent in the past 36 hours. Author of “An Altcoin Trader’s Handbook,” Nik Patel, said after Bitcoin rallied to $11,000 that he wouldn’t be surprised to see Bitcoin dominance continue to trend higher: “Wouldn’t surprise me to see dominance now rise until BTC all-time highs (pending a confirmed Weekly breakout above $10,600) > break $20k and alts find another bottom (like Nov/Dec 2016) > they rally concurrently like March-June 2017.”
A Bitcoin-Centric Market
In the ongoing macroeconomic environment, many traders agree that Bitcoin is the cryptocurrency to watch. Paul Tudor Jones, a billionaire hedge fund manager, commented in a May research note that he thinks Bitcoin has won the “crypto war of 2017 as the clear winner with a market cap 10x that of its closest competitor.” The investor added that in a world with the “most unorthodox economic policies in modern history,” Bitcoin becomes the “fastest horse in the race.” This is a sentiment that his been corroborated by Bloomberg Intelligence senior commodities analyst Mike McGlone, who wrote in a July research note that market factors are naturally favoring Bitcoin’s growth over that of altcoins:
“Too much supply and ease of entry should continue to weigh on most alt–coins, still in an extended hangover from the parabolic gains to the 2017-18 peak. It’s the increasing differentiation, maturation and more widespread adoption that favors Bitcoin, which is becoming more of a gold-like store of value.”