What is causing the decline in altcoins and when can we expect a change in direction?
Over the last month, the cryptocurrency market, particularly altcoins, has been on a downward trend, resulting in significant losses for many. Ethereum (ETH), the second-largest cryptocurrency in terms of market capitalization, has seen a nearly 10% drop in its value over the past 30 days, currently trading at approximately $2,960 as of May 13. However, Ordinals (ORDI) has been hit the hardest, experiencing a 40% decline and now trading at just $36.80.
This decline in the market can be attributed to global economic factors, such as the recent decision by the Federal Reserve (Fed) to maintain interest rates between 5.25% to 5.50%. The Fed’s cautious monetary policy approach, aimed at tackling inflation and economic growth, has created uncertainty among crypto investors, leading them to gravitate towards more established assets like Bitcoin (BTC).
BTC has largely remained above $60,000 levels during this downturn, with BTC dominance reaching 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 strategy to reduce bond holdings, slowing the process of allowing maturing bond proceeds to roll off without reinvestment, could signal potential economic challenges ahead. This may have further eroded investor confidence in altcoins, diverting attention and capital away from riskier assets.
As the crypto market continues to face this downturn, the question arises: when can we expect altcoins to recover? Let’s delve deeper.
Expert Opinions:
Various analysts have shared their perspectives on the current state of the altcoin market:
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, especially in May, with a potential revisit to $52k for Bitcoin and $2 trillion for the total market cap.
Benjamin Cowen draws parallels to previous cycles, noting that ALT/BTC pairs tend to capitulate just before rate cuts. He suggests that ALT/BTC pairs could drop another 40% from current levels over the next few months.
Michaël van de Poppe highlights that altcoins are undergoing a standard correction in USD valuations but are significantly down in BTC valuations, approaching cycle lows. He sees this undervaluation as an opportunity to engage in the markets with higher risk rather than shying away from crypto.
What to Take Away:
These analyses suggest a cautious outlook for the altcoin market in the short term, indicating the possibility of further corrections. However, they also hint at a potential bullish trend in the medium to long term, emphasizing the need to stay vigilant and adaptable as the market evolves.
The next few weeks will be pivotal for the altcoin market, with factors like sentiment, trading volumes, and external economic events playing crucial roles in shaping its trajectory.
Potential Market Catalysts:
The crypto market is at a critical juncture, with potential catalysts that could bring stability and reignite bullish sentiment. One significant development is the progress of the FIT21 Act in the U.S. House, which aims to provide regulatory clarity for digital assets.
If passed, the bill could establish federal standards for digital assets, clarify the jurisdiction of regulatory bodies like the CFTC and SEC, and set a regulatory framework for digital asset markets, offering much-needed certainty for market participants and investors.
Another potential catalyst is the upcoming decision by the SEC on VanEck’s spot ETH ETF application, scheduled for May 23, 2024. A favorable decision could trigger a rally in ETH prices, similar to the BTC surge earlier in 2024.
Despite concerns surrounding the SEC’s classification of ETH as a commodity or security, industry experts believe that a spot ETH ETF will eventually be approved, potentially leading to market recovery and bullish trends in the coming months.
ETH Price Analysis:
As of May 13, Ethereum is trading around $2,970, with a descending pattern raising concerns of a potential drop below $2,500. The recent trend in ETH prices has been bearish, indicating a lack of bullish momentum.
In the short term, ETH faces resistance around the EMA50 at $2,990, with a need to break below $2,900 to resume a bearish trend towards $2,800 and $2,620 levels. Conversely, a breach of $2,990 could lead to further gains up to $3,130.
The expected trading range for ETH is between $2,800 (support) and $3,050 (resistance), with a bearish trend forecasted to continue. This analysis suggests that ETH prices may face continued downward pressure, affecting other altcoins in the market as well.