Altcoins Surpass Bitcoin Performance Amid Ongoing Correlation with Equities, Bitfinex Analysts Indicate

In early September, altcoins have significantly outperformed Bitcoin (BTC), continuing a trend that began in late August, as highlighted in the latest "Bitfinex Alpha" report. If this trend continues, the cryptocurrency market may be poised for a bullish fourth quarter.

Bitcoin's price experienced a notable decline of 11% within a week, hitting $52,756 on September 6. In contrast, the market dominance of altcoins outside the top 10 by market capitalization saw a sharp increase.

This shift contradicts the typical behavior of traders, who usually liquidate altcoin positions in favor of Bitcoin or fiat currencies. Since September 3, Bitcoin's dominance has decreased by 1.3%, while the dominance of altcoins outside the top 10 surged by 4.4%.

Analysts from Bitfinex noted, "This divergence indicates a change in investor sentiment and market dynamics, where investors might be recognizing potential value in altcoins rather than seeking the relative safety of Bitcoin."

The strength displayed by altcoins may also be linked to the recent sell-off, which was driven by outflows from exchange-traded funds (ETFs) and spot selling, according to the report.

Despite this recent outperformance, the altcoin sector has generally lagged behind Bitcoin since the beginning of 2023. The report uses the Ethereum (ETH) to Bitcoin (BTC) ratio (ETH/BTC) as a proxy for altcoins, revealing that this metric is currently below its 365-day Simple Moving Average and has been in a downtrend since late 2022.

At present, the ETH/BTC ratio stands below 0.042, marking its lowest level since April 2021, which coincides with the "Merge" event when Ethereum transitioned to a proof-of-stake consensus model, resulting in a 44% underperformance compared to Bitcoin since then.

However, analysts from Bitfinex suggest that this trend may be nearing a reversal. While major cryptocurrencies have underperformed Bitcoin since November 2022, their dominance may be approaching a local peak.

Consequently, the current outperformance of the altcoin sector could persist during upward movements, potentially setting the stage for a "very bullish" fourth quarter if macroeconomic conditions improve.

The recent correction in Bitcoin's price is also attributed to its close correlation with the performance of the US equities market, as the S&P 500 experienced its worst weekly decline since March 2023, dropping 4.25%.

Moreover, the $706 million in outflows last week and spot selling have contributed to the downward pressure on Bitcoin's price.

Despite Bitcoin's 5.45% decline being less severe than the S&P 500's drop, this could indicate seller exhaustion within the cryptocurrency market.

While various indicators suggest a potential temporary local low for Bitcoin, the future trajectory of Bitcoin will ultimately depend on ETF and spot market flows in the coming days.