Why Are Crypto Investors Rotating From Bitcoin To Altcoins?

The cryptocurrency market is pulling back towards support and could face potential headwinds in the short term. In the top ten cryptocurrency list, the altcoin sector outperformed bitcoin with Ethereum and Binance Coin, and Polkadot still maintained some of its gains from last week.

This shows a shift in the dynamics of the crypto market as investors seem to be regaining confidence in the sector and move away from Bitcoin. Therefore, the number one cryptocurrency by market capitalization appears to be lagging which translates to a decline in the dominance of Bitcoin.

As seen below, this metric has been moving sideways since May 2022 after seeing a small push to the upside. In 2021, when Ethereum and other digital currencies reached all-time highs, Bitcoin’s dominance waned to its current levels.

Altcoin Bitcoin 1
BTC dominance is moving sideways as the price of BTC lags in the altcoin segment on the 4-hour chart. source: BTC.D TradingView

If current trends continue, Bitcoin lags in the altcoin sector, the scale could retest annual lows and drop from 43% to the 30% high which could give altcoins more room to regain previously lost ground.

According to a report by Arcane Research, Crypto indexes for altcoins showed positive returns in August. As shown below, the research firm is reporting profits of 9%, 7%, and 5% for the Large, Medium, and Small Companies Index while Bitcoin is posting a profit of 2%.

Cryptocurrency Bitcoin
Source: Arcane Research

The latter is showing the biggest increase with risk exposure trends upward, and the stablecoin market shares are following a similar trajectory to Bitcoin dominance. Arcane Research noted:

With bitcoin underperforming compared to altcoins, bitcoin dominance has fallen from a peak of 47% in mid-June to 40.5% now. As market sentiment improved, traders were more interested in exposure to altcoins than bitcoin.

In the cryptocurrency market, altcoins may continue to dominate in the short term as BTC price moves sideways. Thus, investors seeking higher returns may consider rotating large to medium and small cryptocurrencies if they have a greater risk tolerance.

Why is the cryptocurrency market witnessing a bearish price movement in the short term

Despite a positive month for the majority of the cryptocurrency market, most cryptocurrencies are seeing bearish price action on lower time frames. This is due to the potential short-term impact of macroeconomic factors affecting the sector.

Tomorrow, the Fed will release its CPI report for July. This measure is used to measure inflation in the US dollar, which has been trending upwards and reached its highest level in 40 years.

Thus, the Federal Reserve has been raising interest rates and changing its monetary policy in an effort to slow inflation. If the print of the CPI for July indicates a success of those attempts, the financial institution may be inclined to act less aggressively.

This could lead to stronger bullish momentum across riskier assets, such as bitcoin and the cryptocurrency market. In the meantime, market participants seem to be sidelined and anticipating tomorrow’s results. pseudonym dealer He said the following:

CPI’s relationship with Bitcoin. Now that gas prices are down, we will see a decrease or continued/cooling of inflation. This will restore confidence to investors. The Fed rate will drop to 50 basis points at the upcoming FOMC meeting, showing optimism for investors. Don’t panic before you move.

Bitcoin Crypto Altcoin
Source: IncomeSharks via Twitter

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