Sellers Exhausted? Altcoin Open Interest Drops 55% from Record High Amid Market Changes

In recent months, the price of Bitcoin has shown a strong correlation with its open interest (OI), which indicates the total number of derivatives contracts that remain unsettled. While Bitcoin's OI remains robust, the total open interest for altcoins has experienced a staggering 55% decline since reaching an all-time high in March.

A recent report from Bitfinex Alpha highlights that Bitcoin's dominance in the cryptocurrency market has surged to its highest level since March 2021, now standing at 57.7%. This increase follows a market downturn in early August. However, the downturn in September saw altcoins gaining traction while Bitcoin's dominance began to wane.

These trends imply that sellers may be nearing exhaustion, with the total value of these altcoin assets now at a mere $8.75 billion. Analysts at Bitfinex suggest that this decline reflects a significant shift in the relative strength of altcoins compared to Bitcoin.

The report indicates that investors are increasingly moving away from Bitcoin's perceived safety and are starting to invest in other digital assets. It notes that during market downturns, traders typically liquidate their altcoin holdings in favor of Bitcoin or fiat currencies, which boosts Bitcoin's dominance as they seek refuge during volatile times.

Interestingly, the recent market downtrend saw Bitcoin's dominance decrease by 1.3%, while the market capitalization of altcoins increased. This shift suggests that investors might be identifying potential value or receiving positive signals from the altcoin markets.

However, Bitfinex analysts caution that these changes could also stem from current market dynamics, particularly due to ETF outflows and selling in the spot market.

They further noted that many altcoins have already experienced declines exceeding 80% from their all-time highs, indicating that it is highly probable that altcoins have reached a state of seller exhaustion.

Since the beginning of last year, altcoins have generally underperformed Bitcoin, with a few exceptions. Nevertheless, Bitcoin's recent drop in dominance suggests it may be nearing a local peak. This could imply that the altcoin sector, as a whole, may continue to outperform Bitcoin during market recoveries and demonstrate resilience during downturns.