Major altcoins experienced larger declines than Bitcoin over the past 24 hours, with experts largely attributing the declines to macroeconomic pressures. The total cryptocurrency market capitalization fell 2.5% to $2.8 trillion. Ethereum fell 5.5% to a market capitalization of $289 billion over the past 24 hours. XRP fell 5.1% to a market capitalization of $82.4 billion. Solana fell 3.8% to a market capitalization of $60.6 billion. Bitcoin fell 3.1% on the day and 2.6% over the week, reaching a market capitalization of $1.6 trillion.
The declines followed a 3.7% increase in the consumer price index in the year to September. Predictors on Myriad assigned a 28% probability to an October interest rate increase. Derive.xyz founder Nick Forster said the inflation development prompted traders to seek protection. Forster said hedging activity on the options trading exchange doubled. Forster said large investors reduced bullish positions established in spring. Forster described the retreat from long-term bullish positions alongside aggressive short-term hedging as a dramatic change in market behavior. Forster said institutional participants were rapidly reassessing macroeconomic risk exposure amid renewed uncertainty over interest rates.
CoinShares senior research associate Luke Nolan said assets that are more sensitive to market movements suffered larger declines, similar to recent moves in equities. Nolan said altcoins are typically more sensitive to financial conditions, and tightening undermines expectations of expanding liquidity. Nolan identified the U.S. dollar reaching a near 18-month high as another source of downward pressure on the entire cryptocurrency market. Nolan said cryptocurrencies tend to have an inverse correlation with the US Dollar Index, or DXY, over a medium-term horizon. Nolan said dollar-denominated cryptocurrency prices partly explain that relationship. Nolan also said a rising dollar tightens liquidity and reduces appetite for risk.
Bitwise Europe senior associate Max Shannon said the declines also reflect altcoins' strength and momentum over recent months. Shannon said futures open interest in altcoins, excluding Ethereum, has fallen by $8 billion since the start of October. Shannon interpreted the decline as traders reducing exposure, a natural reaction after strong gains. Shannon said Ethereum outperformed Bitcoin for three consecutive months, the first such streak since March 2021. Shannon said investors have since been taking profits. Shannon said Ethereum exchange-traded funds recorded 11 consecutive trading days of net outflows totaling $782.8 million before a brief inflow on Tuesday. CoinGlass data showed renewed net outflows totaling $129.5 million since then.
Shannon described the price movements as a consolidation period for altcoins that had already performed well. Shannon said altcoins generally have high correlations with Bitcoin in difficult market conditions. However, Shannon said altcoin correlations with Bitcoin tend to be lower in better market environments, especially when individual altcoins have specific catalysts. Shannon said altcoins could trade in the same direction as Bitcoin in the near term, but with greater sensitivity.
Nolan said a recovery would require lower expectations of an October interest rate increase. Nolan said identifying a bottom for altcoins was difficult because valid arguments supported movements in either direction. Nolan said altcoins would likely fall further if Bitcoin lost support. However, Nolan said the decline could be a short-term correction followed by a return to favorable market conditions soon. Nolan said altcoins could rise disproportionately if Bitcoin recovered decisively above $80,000.