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Week-long inaction of crypto markets ended on a positive note after Bitcoin (BTC) managed to chart a weekly gain of 9%. The month of May has been disastrous for crypto investors and traders with Bitcoin losing 15% value and the LUNA-UST debacle amid unfavorable regulatory climate. Having recorded ninth consecutive week of losses, BTC was struggling to defend its crucial $30,000 level. However, BTC shot up by 4% in the last 24 hours with a considerable 35% spike in volumes. Few altcoins like Cardano (ADA), Axie Infinity (AXS), Waves (WAVES) quickly responded with relief rallies extending their gains to double digits.
In today’s article, we will analyze the price actions of major crypto assets along with the correlation between Bitcoin dominance and price of BTC.
One of the defining features of a bear market is the rise of Bitcoin dominance (BTC.D). Dominance has been on an uptrend ever since the beginning of May. It climbed from 40% to 46% in a matter of weeks leaving most of the altcoins gasping for investors attention. A common misconception is to assume that if BTC.D increases, BTC responds by an increase in price. Take a look at the image shown below depicting the trends of BTC and BTC.D separately. If you notice the orange marked portions of the two trends, one can see that they shared an inverse correlation during the 2018 bear market.
<source: tradingview, binance>
The reality is that altcoins are losing value against BTC during such intervals. So, as a thumb rule, if BTC bleeds, altcoins will even bleed faster. This is not a good scenario for investors who are heavily exposed to altcoins in a bear market scenario. Relief rallies do occur in a few cases on account of news that is perceived positively by investors but they are usually short-lived and lose steam eventually. The only crypto asset that exhibited strength during the previous bear markets was BTC and it is likely to follow that pattern in 2022 too.
One additional fundamental that might even help BTC to mitigate these rough waters is the adoption of layer-2 Lightning Network (LN). LN was built on top of BTC to facilitate faster transactions that make it commercially viable for everyday use. Bitcoin LN’s capacity continues to push to new all-time highs (> 3,000 BTC) despite the decline in price of BTC. Though LN is at its infancy, the layer-2 network is growing consistently allowing BTC to scale as a medium of exchange.
Cardano (ADA), a proof-of-stake top 10 crypto asset, has been trying to expand its DeFi capabilities. Lagon, a cloud computing platform, recently launched a cross-chain bridge that will help bridge between the world’s second largest stablecoin USDC and ERC-20 IAG tokens from Ethereum to Cardano network. ADA was trading at $0.44 the day before yesterday. Post the launch, ADA’s trading volumes soared by more than 300% registering a gain of 25% in the last 24 hours.
Other crypto assets in the top 20 list by market capitalization were unable to gain more than 5% except for Polygon (MATIC) which raked in 8% gains. Axie Infinity (AXS), which was hit post the Ronin blockchain hack in March, increased by 25% as demand returned for play-to-earn tokens. Waves (WAVES), a top 100 crypto asset, registered more than 50% gains in the last 24 hours as the Waves foundation outlined a recovery plan for its USDN stablecoin against future depegging events.
While Bitcoin and key altcoins are showing strength this week, the macro environment continues to remain volatile and shaky. Investors are advised to stick to Bitcoin to navigate the space along with a stack of cash to deploy in case of bigger drops over the next couple of months.
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Disclaimer: This article was authored by Giottus Crypto Exchange as a part of a paid partnership with The News Minute. Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.