Bitcoin stalls, altcoins surge as traders seek higher returns

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(Kitco News) – Cryptocurrencies were on the move higher Tuesday amid conflicting messages from Federal Reserve officials as to the U.S. interest rate outlook.

On one side, Fed Governor Michelle Bowman said she thinks the central bank will have to raise rates further to bring inflation down “to our 2% target in a timely way.”

But Fed Governor Christopher Waller sees the opposite, and said he is becoming more confident that rates are at the right levels even though he needs more data to be sure. Following Waller’s comments, the 10-year U.S. Treasury yield fell 4 basis points to trade near 4.35%.

Stocks responded to the conflicting messages with volatility, climbing higher during early trading, but falling under pressure in the afternoon. At the market close, the S&P, Dow, and Nasdaq all managed to finish in the green, closing up 0.10%, 0.24%, and 0.29%, respectively.

Data provided by TradingView shows that after oscillating around the $37,000 S/R level in the early hours on Tuesday, Bitcoin (BTC) charged higher near midday, with bulls pushing it to a daily high of $38,430 before bearish resistance led to a pullback to $38,100, where it trades at the time of writing.

BTC/USD Chart by TradingView

While Bitcoin usually receives the majority of attention from news outlets, altcoins have begun to receive more coverage as the recent stall in Bitcoin’s ascent is pushing traders to engage with other tokens, a development that has become known as ‘altseason.’

“Underneath the surface, things in Crypto Land have been changing very quickly,” said Raoul Pal, founder and CEO of Global Macro Investor. “Nearly 40% of the 300 altcoins that we track at GMI have been outperforming Bitcoin over a rolling 90-day period.”

Pal provided the following chart and said to “think of it like a traditional credit spread but inverted.”

Altseason chart. Source: GMI

“During periods of slower growth, credit spreads tend to widen, signaling investor demand for higher yields to compensate for the increase in the perceived risk of default,” he said. “Crypto Land is no different. When the macro is negative, investors tend to retreat from further out the crypto risk curve and hug the benchmark (i.e., Bitcoin) and Bitcoin outperforms.”

“On the other hand, when liquidity turns positive and lead indicators start to turn higher, investors start to reach further out the crypto risk curve looking for even larger gains in smaller, earlier-stage projects,” he said. “It’s classic risk-seeking behavior and the rotation over the summer has been fully consistent with our work at GMI. The signal to have looked out for was the cross below the 10% threshold back in June of this year; this was telling you that something was about to change…”

Pal also noted that the liquidity cycle provides useful insight into when “major inflection points for risk assets” occur.

Global liquidity cycle. Source: GMI

“Based on our work you can see that the liquidity cycle bottomed in October of last year and our lead indicators suggest that liquidity will continue to trend higher in 2024,” he said. “Remember, crypto is macro and macro is crypto. Get the macro right, you get the crypto right.”

Altcoin season in full swing

Tuesday’s performance in the altcoin market further confirmed that traders are indeed engaging with lower-cap coins as all but five tokens in the top 200 were in the green for the day.

Daily cryptocurrency market performance. Source: Coin360

Sei (SEI) increased by 33.6% to lead the gainers, followed by an increase of 33.5% for TerraClassicUSD (USTC) and a gain of 23.8% for Galxe (GAL). tomiNET (TOMI) was the biggest loser with a decline of 4.54%, while EthereumPoW (ETHW) fell 2.6%, and Magic (MAGIC) lost 1.55%.

The overall cryptocurrency market cap now stands at $1.43 trillion, and Bitcoin’s dominance rate is 52.1%.