Altcoins Outperform Bitcoin and Ether After Fed Rate Cut

Cryptonews Economy John Brightwater September 20, 2024

Altcoins Outperform Bitcoin and Ether After Fed Rate Cut

Summary
After the Federal Reserve announced a cut in interest rates by 50 basis points, altcoins surged by 5.7%, outperforming Bitcoin, which rose by 4.4%. Experts attribute this divergence to the altcoins’ higher volatility and lower liquidity, suggesting that market conditions are favoring their performance at this time.

Following the Federal Reserve’s recent announcement of a 50 basis point reduction in interest rates, the cryptocurrency market witnessed a notable increase in altcoin valuations. Specifically, altcoins, which encompass cryptocurrencies other than Bitcoin and Ether, experienced an impressive rise of 5.7% since this decision was made, compared to Bitcoin’s comparatively modest increase of 4.4%. This performance divergence between altcoins and the two leading cryptocurrencies is not atypical and can be attributed to the unique characteristics of altcoins, including their lower liquidity and higher volatility. According to data sourced from TradingView, the Total3 index, which benchmarks the market capitalization of the leading 125 cryptocurrencies while excluding Bitcoin and Ether, reflected a 5.68% increase following the announcement of the interest rate cut by the Federal Reserve. Conversely, Bitcoin’s market cap recorded only a 4.4% rise. Industry experts, such as Bob Wallden, head of trading at Abra, elucidate that this phenomenon is expected due to altcoins exhibiting higher beta characteristics than Bitcoin and Ether, likening their performance to leveraged plays within the broader cryptocurrency market during bullish phases. Wallden also noted that the recent overselling of altcoins may have contributed to their sharp recovery. Bohan Jiang, Head of OTC options trading at Abra, elaborated on the implications of liquidity dynamics, asserting that lower liquidity in altcoins leads to exaggerated price movements, particularly in times of plentiful liquidity following favorable market conditions. This suggests that shifting market conditions may induce notable outperformance in altcoins during bullish trends.

The cryptocurrency market is deeply affected by macroeconomic events, such as decisions made by the Federal Reserve concerning interest rates. Recent adjustments in these rates have historically influenced investor behavior and market dynamics within the digital asset space. Altcoins are often viewed as more speculative investments compared to established cryptocurrencies like Bitcoin and Ether, which results in their prices being more sensitive to fluctuations in market sentiment and liquidity. This sensitivity leads to significant price movements during shifts in economic policy, making them attractive to traders seeking higher returns amidst varying levels of market activity.

In conclusion, the Federal Reserve’s decision to lower interest rates has catalyzed a significant surge in altcoins as they outperformed Bitcoin following the announcement. This performance dichotomy underscores the inherent volatility of altcoins and suggests that their liquidity dynamics can lead to outsized responses to broader market trends. As the market continues to react to economic stimuli, the distinct characteristics of altcoins are likely to be a focal point for investors seeking opportunities in the cryptocurrency landscape.

Original Source: www.coindesk.com