Altcoin Sector Bleeds: Bitcoin Outperforms as Market Cap Plummets

The altcoin sector has experienced historic losses in recent weeks, with many cryptocurrencies suffering significant declines. Despite the widespread sell-off, Bitcoin has remained relatively resilient, outperforming most altcoins.

A report by Glassnode revealed that weak adoption and product-market fit have compounded the struggles of the altcoin sector. Principal Component Analysis (PCA) showed that most ERC-20 tokens exhibit highly correlated price movements, indicating a sector-wide sell-off with little differentiation among assets.

Data from Artemis showed that the average market performance of altcoins since the Feb. 2 crash has been negative 3.4%, compared to Bitcoin's 1.5% price decrease in the same period. Only five of the 21 altcoin sectors tracked by Artemis displayed better average performances than Bitcoin.

The report highlighted that the altcoin market capitalization declined by $234 billion over the past two weeks, with only a handful of historical events recording larger absolute drawdowns. In percentage terms, the current drawdown ranks among the largest in altcoin history, with only 41 out of 1,662 trading days experiencing a more severe decline.

Despite recent sentiment improvements following the US elections and a surge in altcoin exchange-traded fund (ETF) filings, liquidity remains highly concentrated. A report by Kaiko pointed out that daily altcoin liquidity has nearly doubled since September, reaching $960 million. However, the top 10 altcoins by market cap now account for 64% of total market depth, while mid-cap tokens have seen their share decline. Smaller-cap altcoins have gained ground, surpassing higher market-cap groups in liquidity share, leaving many altcoins vulnerable.

The divergence between Bitcoin and altcoins raises questions about the long-term viability of numerous altcoin projects. As the digital asset market continues to evolve, investors and traders must remain vigilant and adapt to the changing landscape.