FameEX Hot Topics | Bitcoin and Altcoins Underperform as Gold and Stocks

New research from on-chain analytics platform CryptoQuant offers valuable insights into why Bitcoin and altcoins have struggled recently, while other assets like gold and US stock markets have been posting all-time highs. The research highlights four key reasons for this underperformance: Federal Reserve rate cuts, stablecoin reserves, leveraged traders, and historical market patterns. These factors have kept liquidity away from crypto, causing both Bitcoin and altcoins to underperform and raising concerns about crypto’s failure to break into the mainstream.

CryptoQuant contributor XWIN Research Japan presents a different perspective, arguing that the current market behavior of Bitcoin and altcoins is simply following historical patterns. They point out that, in the early phases of rate cuts, institutional capital tends to flow first into high-liquidity assets like equities and gold. Crypto, particularly altcoins, tends to be at the end of the liquidity pipeline, benefiting only when broader risk appetite expands. This explains why Bitcoin and altcoins have been unable to challenge all-time highs while other assets soar.

XWIN compares the current situation with Bitcoin and Ethereum to similar conditions from a year ago. They note that the current market pattern mirrors 2024, where a front-run rally occurred after the Fed’s rate cuts, followed by a correction due to liquidity not fully rotating into crypto. It was only after traditional assets cooled down that Bitcoin and Ethereum outperformed. This historical pattern suggests that the same sequence could unfold again in 2024, with Bitcoin and altcoins catching up after equities and gold have cooled down.

Stablecoin reserves are another factor creating a delay in crypto’s performance. The total stablecoin supply reached a record $308 billion this month. However, there’s been a net outflow of stablecoins from exchanges, indicating a risk-off or profit-taking mentality among traders. Liquidity is being parked off-exchange or used in private markets, rather than being deployed to buy Bitcoin or Ethereum, which further delays the recovery in crypto markets.

Lastly, leveraged traders and hedging strategies are exacerbating the sideways movement in the market. Data from derivatives platforms shows a strong preference for these strategies, indicating that traders are not confident enough to accumulate crypto in large amounts. This aligns with historical trends, where Bitcoin tends to lag behind before making a substantial leap. XWIN concludes that Bitcoin has historically gained +12% in 30 days and +35% in 90 days following equity all-time highs.

In summary, despite short-term headwinds such as quantitative tightening, Treasury liquidity absorption, and looming options expiry, the structural setup favors crypto once liquidity cycles catch up. The $22.6 billion options expiry this Friday could be a pivotal event, with the potential to impact prices in the near term and set the stage for a crypto rally.

Disclaimer: The information provided in this section is for reference only and does not represent any investment advice or the official views of FameEX.