What is causing the decline in altcoins and when can we expect a turnaround?
Over the past month, the cryptocurrency market, particularly altcoins, has been experiencing a prolonged slump, resulting in significant losses for many investors. Ethereum (ETH), the second-largest cryptocurrency by market capitalization, has seen a decrease of nearly 10% in its value over the last 30 days, currently trading at approximately $2,960 as of May 13. Meanwhile, Ordinals (ORDI) has been hit the hardest, plummeting by 40% and now trading at just $36.80.
This downward trend in the market seems to be in line with global economic patterns, such as the recent decision by the Federal Reserve (Fed) to maintain its interest rates between 5.25% to 5.50%. The Fed’s cautious monetary policy approach, aimed at addressing inflation and economic growth, has created uncertainty among crypto investors, leading them to lean towards more established assets like Bitcoin (BTC).
BTC has maintained levels above $60,000 throughout this downturn, with BTC dominance even reaching a high of nearly 57% in April, a significant increase from last year’s levels of 45-46%. As of May 13, BTC dominance stands at over 55%.
Additionally, the Fed’s announcement regarding its reduction strategy for bond holdings, slowing down the process of allowing maturing bond proceeds to roll off without reinvestment, may signal potential economic challenges ahead. This announcement could have further diminished investor confidence in altcoins, diverting attention and capital away from riskier assets.
As the crypto market grapples with this decline, the question arises: when will altcoins bounce back? Let’s delve into it.
Expert opinions on the matter vary. Patric H. from CryptelligenceX remains optimistic about the overall market, predicting a continuation of the bull market until mid-Q3/Q4 2024. However, he warns of a turbulent phase in the short term, particularly in May, and anticipates a final shake-out in the next 2-6 weeks. Benjamin Cowen draws parallels to previous cycles, suggesting that ALT/BTC pairs could drop another 40% from current levels over the next few months. Michaël van de Poppe notes that altcoins are undergoing a correction in USD valuations, presenting an opportunity to enter the markets with higher risk rather than shying away from crypto.
These analyses point towards a cautious outlook for the altcoin market in the short term, with the potential for more corrections to come. However, there is also a possibility of a bullish trend in the medium to long term, indicating that staying adaptable and vigilant as the market evolves is key.
The next few weeks will be crucial for the altcoin market, with factors like sentiment, trading volumes, and external economic events likely to play a significant role.
In terms of potential catalysts for market recovery, the progress of the Financial Innovation and Technology for the 21st Century (FIT21) Act in the U.S. House could bring regulatory clarity to digital assets, potentially boosting confidence and investment in the sector. Another key development to watch is the SEC’s upcoming decision on VanEck’s spot ETH exchange-traded fund (ETF) application on May 23, 2024. A favorable decision could trigger a rally in ETH prices.
While concerns linger regarding the SEC’s classification of ETH as a commodity or security, experts believe that a spot ETH ETF will eventually be approved, potentially driving a recovery in the altcoin market.
In terms of ETH price analysis, Ethereum is currently trading at around $2,970 with a bearish trend. The expected trading range for ETH is between $2800 (support) and $3050 (resistance), with the trend forecast remaining bearish.
Overall, while the altcoin market may face continued pressure in the short term, regulatory clarity and potential market catalysts could pave the way for a recovery and bullish trends in the coming months.