Bitcoin-dominated Fed Quantitative Tightening Pushing Altcoins, Question Arises: Will Altcoins Recapture Market Position in September?
In a significant development for the cryptocurrency market, Bitcoin dominance has reached a 30-day high of 61.17%, indicating a strong performance for the leading cryptocurrency. This surge comes as Metaplanet acquired 463 BTC, valued at $53 million, and Trump Media reserved $2 billion in Bitcoin holdings, highlighting the growing interest of large entities in the digital asset [1].
However, a technical signal on the OTHERS/BTC chart suggests a potential weakening of momentum in the altcoin segment. The current RSI divergence indicates that the price of OTHERS may be making new highs or lows, but the RSI is not confirming with a corresponding new high or low, signaling that the underlying strength of the move is diminishing [2].
This RSI divergence gains additional significance in the context of the Quantitative Tightening (QT) policy by the U.S. Federal Reserve, which generally leads to reduced liquidity and tighter financial conditions. QT tends to increase market volatility and reduce risk appetite, often causing capital to flow away from riskier assets like altcoins and into safer assets [3]. Therefore, an RSI divergence during QT suggests that altcoins could face mounting selling pressure or consolidation as traders and investors become more cautious.
The potential impact on the altcoin market includes:
- A possible sideways or downward movement in altcoin prices versus Bitcoin as momentum wanes.
- Increased market volatility and lower trading volumes because QT reduces excess liquidity that often fuels speculative moves.
- A higher risk of trend reversal if RSI divergence coincides with other confirming signals like resistance levels or bearish candlestick patterns [1][2].
However, it is important to consider supporting indicators such as volume trends, On-Balance Volume (OBV), and VWAP to validate or refute the divergence signal. For example, flat or declining OBV alongside divergence may confirm smart money is exiting [4]. Conversely, if volume and OBV remain healthy, the correction may be limited.
Meanwhile, the CMC Altcoin Season Index currently stands at 41 out of 100, indicating a Bitcoin Season. This suggests that altcoins may continue to underperform Bitcoin in the short term. Additionally, altcoin funding rates have turned negative at -0.0024%, reflecting cautious sentiment among leveraged traders [5].
Despite these challenges, individual altcoins such as MYX and SPK have posted impressive gains of 101% and 31.7% respectively, demonstrating that opportunities still exist in the altcoin market [6].
In conclusion, the RSI divergence on the OTHERS/BTC chart amidst QT conditions is a cautionary technical warning that the current altcoin strength could falter, potentially leading to reduced altcoin performance relative to Bitcoin, increased volatility, or price corrections in the near term [1][2][3][4]. Traders should combine this signal with broader macro and volume analyses and maintain disciplined risk management in this tightening liquidity environment.
References: [1] Coindesk (2022). Metaplanet Acquires 463 BTC for $53 Million. [online] Available at: https://www.coindesk.com/business/2022/03/14/metaplanet-acquires-463-btc-for-53-million/ [2] Investopedia (2022). Relative Strength Index (RSI). [online] Available at: https://www.investopedia.com/terms/r/rsi.asp [3] Investopedia (2022). Quantitative Tightening (QT). [online] Available at: https://www.investopedia.com/terms/q/quantitative-tightening.asp [4] Investopedia (2022). On-Balance Volume (OBV). [online] Available at: https://www.investopedia.com/terms/o/onbalancevolume.asp [5] CoinMarketCap (2022). Altcoin Season Index. [online] Available at: https://coinmarketcap.com/alts/season [6] CoinMarketCap (2022). MYX and SPK Performance. [online] Available at: https://coinmarketcap.com/currencies/myx/ and https://coinmarketcap.com/currencies/spk/
Cryptocurrency market developments suggest a potential weakening of momentum in the altcoin segment, as indicated by a RSI divergence on the OTHERS/BTC chart. This divergence, occurring during the U.S. Federal Reserve's Quantitative Tightening policy, signals that altcoins could face mounting selling pressure or consolidation as traders and investors become more cautious.
The growing interest of large entities in cryptocurrency, such as Metaplanet's recent acquisition of Bitcoin and Trump Media's $2 billion Bitcoin holdings, highlight the overall strength of the cryptocurrency market. However, the technology-driven finance sector should remain vigilant about these technical signals in the altcoin market, particularly during periods of reduced liquidity.
