Bitcoin (BTC) may have outperformed stocks following the Federal Reserve’s decision to reduce interest rates on Wednesday, with altcoins emerging as the main beneficiaries in the cryptocurrency market.
Total3, an index that monitors the market capitalization of the top 125 cryptocurrencies, excluding bitcoin and ether (ETH), witnessed a 5.68% increase following the central bank’s decision to cut the Federal Funds rate by 50 basis points, as per the data from TradingView. In comparison, Bitcoin’s market cap saw a rise of only 4.4%.
This trend isn’t new, explained Bob Wallden, head of trading at investment firm Abra.
“Altcoins act as a high-risk variant of bitcoin and ether, akin to a leveraged play on the overall cryptocurrency market, similar to how technology stocks may outperform the S&P 500 during positive market phases,” he explained.
This category, excluding bitcoin and ether, appears to have gained momentum following a significant oversold phase, according to Wallden, enhancing their recovery speed.
Due to their lower liquidity, altcoins are prone to exhibit higher volatility, noted Bohan Jiang, Head of OTC options trading at Abra.
“Being on the extreme end of the liquidity spectrum, altcoins typically show amplified performance during periods of robust asset performance and high liquidity, which is currently the situation following the FOMC meetings,” he stated.
“They also perform as a function of liquidity and positioning: liquidity in alts is substantially poorer, causing outsized moves both ways. Extended short positioning building up over the past few months can therefore cause short-squeeze-like outperformance higher.”
The Federal Reserve’s decision to lower interest rates pushed bitcoin above $64,000 last Thursday, a price last seen on Aug. 26.
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