Altcoins perform poorly, liquidity is the key factor driving the rise
Since the launch of the ETH spot ETF in the United States last summer, ETHs dominance has fallen by nearly 50%. If ETH is the fuel that drives the crypto economy, then the current state of the crypto economy is comparable to a deep recession.
But ETH isn’t the only altcoin that’s underperforming BTC. Over the past year, many altcoin narratives have come and gone — from Dogecoin derivatives to virtual tokens to Trump-themed tokens. These tokens often follow a similar pattern: a rapid, frenetic rise followed by a rapid, precipitous fall, a pyramid-shaped price structure, and a long, sluggish tail.
For altcoins to achieve significant upside, we need to see real-world use cases driving demand growth, or a surge in liquidity similar to the 2020-2021 cycle. Historically, we have only seen altcoins gain significant growth during periods of ample liquidity. However, based on the indicators we track, the likelihood of a significant influx of liquidity in the crypto market is low - which makes the probability of a large-scale rise in altcoins in the short term low.
Market speculation is limited, BTC rises in need of catalyst
The minting of stablecoins has dropped sharply recently, and this micro-liquidity signal supports that BTC may remain in the $80,000 to $90,000 range in the short term. However, it is unlikely to stagnate completely. Trading volume (including that of BTC ETFs) remains sluggish, which indicates limited speculative activity in the market.
However, to achieve sustained gains, BTC still needs a catalyst, which could come in the form of the following three types of liquidity:
(1) The Federal Reserve sends a dovish signal or cuts interest rates;
(2) Liquidity at the micro level, such as the growth of stablecoins and increased futures leverage;
(3) Macro-level liquidity, such as growth in money supply or other government-driven stimulus measures.
The continued weakness of US stocks may further boost BTC prices
The U.S. Federal Reserve is likely to keep interest rates unchanged over the summer to assess the inflationary impact of Trumps proposed tariffs. Although the market expects four rate cuts by 2025, Fed Chairman Powell stressed the need for caution in assessing the economic impact of these proposals. Investors appear distracted by a portfolio of underperforming stocks, while Trumps push to renegotiate trade deals and reshape the global order has had a significant impact on the market.
Interestingly, this weakens the performance of the US dollar. Since the global money supply is usually measured in US dollars, a weaker US dollar mechanically increases the money supply. This effect is supportive of the BTC price. In past bear markets, the viability of BTC was often questioned, mainly due to concerns about regulatory crackdowns or full bans. However, this risk has now been significantly reduced, which partly explains why BTC has performed much better in the current correction than in previous cycles.
Disclaimer: The market is risky and investment should be cautious. This article does not constitute investment advice. Digital asset trading can be extremely risky and unstable. Investment decisions should be made after carefully considering personal circumstances and consulting financial professionals. Matrixport is not responsible for any investment decisions based on the information provided in this content.
