Market Wrap: Bitcoin in Recovery Mode, Crypto Stocks Outperform

Bitcoin (BTC) reached a session high of $43,300, its highest level in almost three weeks, as bullish sentiment improved among crypto traders.

Some alternative cryptocurrencies (altcoins) also edged higher on Tuesday, even as alts’ recent gains against bitcoin were starting to fade. For example, ether (ETH), the second-largest cryptocurrency by market capitalization after bitcoin, rose above $3,000 for the first time in two weeks and was up 3% over the past 24 hours, compared to a rise of as much as 4% in BTC over the same period. Meanwhile, Terra’s LUNA token was down 3% over the past 24 hours.

But some analysts remain cautious despite the recent price rise. “This is not the first such jump in BTC since the beginning of March, in contrast to the neutral or even negative sentiment in the stock markets,” Alex Kuptsikevich, an analyst at FxPro, wrote in an article. “Until now, such impulses cannot be on a solid basis, because the fundamental demand for risks is under obvious pressure.”

Elsewhere, global equities traded higher on Monday while gold, a traditional safe haven, declined. The 10-year Treasury bond yield continued higher, tracking gains in oil prices as investors position themselves for high inflation and rising interest rates.

Is “altcoin season” making a comeback? Not quite.

For now, some analysts see the potential for a short-term relief rally in altcoins, which could signal a greater appetite for risk among crypto investors. Altcoins tend to outperform in bull markets because of their higher risk profile relative to bitcoin.

The chart below shows the cycle in bitcoin and altcoins over the past year. When Glassnode’s risk indicators reach extreme highs, a greater allocation to bitcoin is warranted, similar to what occurred earlier this year. In contrast, when risk is low for an extended period of time, traders tend to shift toward altcoins as sentiment improves.

Currently, the risk signal (see last panel below) is still above 25, which does not suggest an aggressive rotation to altcoins. Read more here.

And here is the Altcoin Season Index by Blockchain Center. So far, roughly 25% of the top 50 coins are performing better than bitcoin over the past 90 days, which is below the 75% threshold to signal a bullish phase for altcoins (possibly too late for traders looking for a new trend).

Instead, based on previous cycles, altcoins tend to sustain their outperformance once the indicator crosses above the 50% neutral mark.

Another indicator of investor appetite for risk is the performance of crypto-related stocks relative to BTC.

The chart below shows the recent outperformance of the Bitwise Crypto Industry Innovators exchange-traded fund (BITQ), which tracks the performance of companies that generate the majority of their revenue from their crypto business activities. BITQ is now ahead of BTC over the past 30 days, which typically signals a bullish turn in crypto markets.