Altcoins Surge Leaving Bitcoin and Ether Behind After Fed Cuts Interest Rate

After the central bank announced a 50 basis point cut in interest rates, the market capitalization of altcoins surged by 5.7%, outperforming Bitcoin’s 4.4% increase.

While Bitcoin (BTC) may have shown resilience against stocks following the Fed’s decision, it is altcoins that emerged as the clear winners in the cryptocurrency space. The Total3 index, which tracks the market cap of the top 125 cryptocurrencies excluding Bitcoin and Ethereum (ETH), climbed 5.68% after the rate cut announcement, highlighting a notable divergence in performance.

Experts attribute this trend to altcoins’ typically lower liquidity and higher beta, making them more responsive to market changes. As a result, cryptocurrencies outside of Bitcoin and Ethereum have experienced a stronger rally in response to the Fed’s move.

Bob Wallden, head of trading at investment firm Abra, noted that the recent performance of altcoins isn’t surprising. “Altcoins have a higher beta than Bitcoin and Ethereum, making them akin to a leveraged play on the broader crypto market, much like tech stocks tend to outperform the S&P 500 during positive market shifts,” he explained.

The altcoin market, which encompasses all cryptocurrencies except Bitcoin and Ethereum, may have also benefitted from a recent overselling phase, adding momentum to their rebound.

Bohan Jiang, Head of OTC options trading at Abra, pointed out that altcoins tend to exhibit greater volatility due to their relatively low liquidity. “Altcoins exist on the fringes of the liquidity spectrum, which means their performance can be highly convex when risk assets do well and liquidity is plentiful, as we’re seeing post-FOMC,” he stated.

He added that altcoin performance is heavily influenced by liquidity and market positioning. The poor liquidity conditions can lead to significant price swings in both directions. As short positions accumulated over recent months, this could result in sharp upward moves, akin to a short squeeze.

In the wake of the Federal Reserve’s rate cut, Bitcoin surged above $64,000 on Thursday, a level last reached on August 26, before settling back to around $62,898.