Bitcoin Dominance Rate Soars to a Cycle High, Why Is the Altcoin Rally So Short-lived?

On March 12, Matrixport released a chart showing that Bitcoin dominance has soared to a new high in this round of cycles, and even broke through the previous peak. This phenomenon clearly shows that the rebound of altcoins is extremely short-lived. Looking back at this round of market, it started with Trump's election in November last year. At that time, market sentiment was high, and many investors were optimistic about the prospects of altcoins. A large amount of funds poured into the altcoin market, opening a seemingly prosperous rebound.

However, this altcoin market lasted only about a month. By the beginning of December, it ended suddenly like a flash in the pan. The reason behind this is that an unexpected U.S. employment report quickly changed the market focus. The improvement in employment data has changed the market's expectations for economic prospects. The originally loose market atmosphere has been broken, and investors have begun to re-examine their investment strategies.

At the same time, the Fed's more hawkish position also played a key role at this time. The hawkish statement from the Federal Reserve means that expectations of monetary policy tightening have increased, which undoubtedly increases downward pressure on risky assets. As one of the risky assets, altcoins are the first to be affected by their high risk and high volatility characteristics. Under the hawkish tone of the Federal Reserve, investors have sold their altcoins in order to avoid risks.

Senior traders quickly rotated back to Bitcoin from altcoins. Even though Bitcoin's own price has fallen back during this period, its performance is still significantly better than other currencies compared to the market. As the leader of the cryptocurrency market, Bitcoin has always been regarded as a relatively stable asset and has high market recognition and liquidity. During periods of market instability, investors are more inclined to hold Bitcoin to ensure the security of their assets.

From the overall market situation, the current market hope is based on the recovery of liquidity, and we look forward to pushing Bitcoin to rise further. But against the background of the unchanged tone of the Federal Reserve's hawkish tone, liquidity improvement faces many obstacles. The Federal Reserve continues to tighten monetary policy, and the market's capital market is tight, making it difficult to provide sufficient impetus for Bitcoin's rise in the short term.

Previously, altcoins attracted a large number of investors in the early stages of their rebound with their lower market capitalization and higher potential returns. Many new investors expect to make high profits in altcoins, and the influx of funds has caused the altcoins to rise rapidly. However, this rise without fundamental support is not solid. Once the market environment changes and investors' confidence shakes, prices will fall rapidly.

In contrast, Bitcoin has more support for value. Its decentralization and total fixed properties make it have a relatively stable value basis in the long run. These characteristics become key factors that attract investors in the event of market turmoil and have made Bitcoin’s dominance increasingly stable in the market. Although altcoins also have their unique value in the market, such as some altcoins have certain advantages in technological innovation and application scenario expansion, in the context of unstable macroeconomic environment and tight Fed policies, these advantages are difficult to resist market risks and cannot support their continued rebound.

From the perspective of investor structure, institutional investors' influence in the cryptocurrency market is increasing. As market volatility intensifies, institutional investors prefer to hold mainstream cryptocurrencies such as Bitcoin for risk control and asset allocation considerations. The scale of funds for institutional investors is huge, and their investment decisions have an important impact on the direction of the market. As a large number of institutional investors shifted from altcoins to Bitcoin, the outflow of funds in the altcoin market intensified and prices fell further.

Individual investors often lack sufficient professional knowledge and risk tolerance when facing market changes. During the decline in the altcoin price, individual investors are prone to panic and follow the trend to sell their assets, further exacerbating the downward trend of the altcoin market.

In terms of market supervision, with the development of the cryptocurrency market, regulatory policies have gradually become stricter. Under the hawkish stance of the Federal Reserve, supervision of the cryptocurrency market may also be further strengthened. Due to its relatively irregular market operation and high risks, altcoins are more likely to become the focus of supervision. The uncertainty of regulatory policies has caused investors' investment confidence in altcoins to be frustrated and they have withdrawn one after another.

In the long-term development process, Bitcoin has gradually formed a relatively standardized market operation model, which has certain advantages in dealing with supervision. This also enables Bitcoin to maintain a relatively stable performance under the dual pressure of market volatility and stricter regulation, and its dominance continues to rise.

Although the market expects a rebound in liquidity to push Bitcoin higher, at a time when the hawkish tone of the Federal Reserve has not changed, the next round of rise may still require more patience. If altcoins want to usher in a large-scale rebound again, they not only need to improve the overall market environment, but also need to make substantial progress in technological innovation, market norms, etc. to enhance investor confidence.