What is Driving the Altcoin Crash? What are the Factors Influencing the Drop?

Key Takeaways:

• Ethereum ETF Impact: The delayed listing of Ethereum ETFs, despite SEC approval of 19b-4 filings, underscores regulatory uncertainty impacting altcoin market sentiment. Analysts anticipate potential price catalysts upon S1 approval, signaling broader market acceptance and institutional investment influx.
• Macroeconomic Factors: Altcoin volatility persists amid the Federal Reserve’s hawkish stance and global economic shifts. Despite initial optimism from lower-than-expected US inflation data, continued rate hike projections and a strengthening US Dollar pose challenges for crypto assets reliant on low-interest environments.
• Google Search Trends: Declining Google search interest in cryptos over recent years reflects waning retail investor participation. While major cryptos like Bitcoin and Ethereum maintain stability, the absence of new retail capital inflows hampers sustained altcoin momentum amidst market fluctuations.
• Market Sentiment: Ongoing regulatory developments and macroeconomic indicators shape current altcoin market dynamics. The potential approval of Ethereum’s S1 filing for ETF listing is poised to influence sentiment significantly, potentially triggering a “Sell the Rumor, Buy the News” scenario and broader market recovery.
• Navigating Volatility: Investors navigating the complex altcoin landscape must monitor regulatory updates and macroeconomic trends closely. Understanding these multifaceted factors is essential for anticipating future trends and managing risks amid ongoing market volatility.

Introduction

In a turbulent period for the crypto market, recent weeks have witnessed a sharp downturn, leaving many participants questioning the reasons behind the altcoin crash. Following Bitcoin price declines to its lowest levels in four weeks, hovering around $65,100 after a 7.5% drop, the broader market, including altcoins, has experienced notable volatility. This phenomenon, where the performance of altcoins often mirrors Bitcoin’s movements, underscores the interconnected nature of the crypto ecosystem.

Total Crypto Market Cap | Source: TradingView

The chart above shows the overall crypto market cap trends and we can see that the overall crypto market cap has also fallen a little over 10.5% in the past 2 weeks alone. At the same time, the chart attached below, which tracks the overall crypto market cap, minus the market caps of Bitcoin and Ethereum – shows a significantly bigger 16.3% correction in the same timeframe.

Total Crypto Market Cap (Without Bitcoin & Ethereum) | Source: TradingView

Crypto analyst Michaël van de Poppe, also known as “Crypto Michaël,” has shed light on the severity of the situation, noting that major altcoins have plummeted by more than 40% over the past fortnight. On-chain altcoins have fared even worse, witnessing staggering declines exceeding 70%. Amidst these developments, discussions abound regarding the underlying causes driving the downturn and the implications for the future trajectory of altcoin prices.

#Altcoins are crashing, what’s next?

Altcoins have been suffering; some have seen a correction of more than forty percent in two weeks.

In my new video, I’m talking about the reasons for the altcoin crash, watch here: https://t.co/uqbkVgfI7b

However, the altcoin crash is…

— Michaël van de Poppe (@CryptoMichNL) June 16, 2024

In this blog post, we delve into the factors contributing to the recent altcoin market drops and explore why altcoins are currently experiencing a pronounced downturn. Understanding these dynamics is crucial for investors and enthusiasts navigating the complexities of the crypto landscape amidst the ongoing volatility.

Read More: Top Altcoins in June 2024

So Why Are Altcoins Crashing of Late?

Uncertainty Surrounding Spot Ethereum ETFs

The primary catalyst behind the recent altcoin crash revolves around the uncertainty surrounding spot Ethereum ETFs in the United States. Despite receiving approval from the SEC, these ETFs are yet to be listed, creating confusion and impacting market sentiment negatively. This delay stems from the complex approval process involving 19b-4 and S1 forms, crucial for technical compliance and exchange listing, respectively. Analysts, including Michaël, suggest that once these ETFs are listed, Ethereum could gain status as a commodity akin to Bitcoin, potentially attracting substantial institutional investments and broader market acceptance.

Macroeconomic Factors and Market Impact

Another significant factor contributing to the altcoin market drops is the macroeconomic landscape. Initial hopes for a pause in Fed rate hikes due to lower-than-expected US inflation were tempered by the Federal Reserve’s persistent hawkish stance, causing uncertainty. Altcoins typically thrive in low-interest-rate environments with ample liquidity, conditions currently lacking amidst a strong dollar bolstered by recent ECB rate cuts. Moreover, the absence of a compelling narrative in the crypto market has contributed to waning retail investor interest, despite sporadic hype around meme coins and Real-World Asset (RWA) tokens earlier in the year.

Ethereum ETF and Market Sentiment

The anticipated approval of Ethereum’s S1 filing for ETF listing remains pivotal. While the approval of 19b-4 filings initially boosted Ethereum prices to $3,800 and sparked a 20% single-day rally, subsequent price stagnation, and a subsequent 10% decline underscore the market’s cautious stance pending S1 approval. Analysts predict that once SEC approval for S1 is secured, likely by summer, it could trigger a “Sell the Rumor, Buy the News” scenario, potentially catalyzing a broader market recovery as Ethereum’s classification as a commodity sets a precedent for the entire crypto ecosystem.

Google Search Trends and Retail Investor Absence

An additional factor influencing the recent altcoin crash is the significant decline in Google search interest related to cryptos. Over the past five years, search volumes have plummeted, indicating a diminishing retail investor presence. While major assets like Bitcoin and Solana maintain value, the lack of new retail investors has hindered the influx of fresh capital needed to sustain altcoin momentum amidst fluctuating market conditions.

Interest Over Time (crypto) | Source: Google Trends

The chart above shows the Google Search trends for cryptos. It has been on a gradual downward trend for the past 90 days and the same is the case with other slightly more specific keywords like Bitcoin. Ethereum’s chart (attached below) is a slightly different trend, with a massive spike between May 19 to May 24, because on May 23, the US SEC gave a nod to exchange applications to list and trade spot Ethereum ETFs, clearing the way for approvals of the funds themselves.

Interest Over Time (Ethereum) | Source: Google Trends

FOMC Decisions and Crypto Market Reaction

The recent FOMC meetings and subsequent decisions have also weighed heavily on altcoin prices. Despite favorable CPI and PPI data indicating lower inflationary pressures, Federal Reserve Chairman Jerome Powell’s unexpectedly hawkish tone dashed hopes for accommodative monetary policies favorable to risk assets like cryptos. The market’s preference for quantitative easing (QE) and rate cuts, coupled with a strengthening US Dollar (DXY), further exacerbated altcoin volatility, marking a challenging period for crypto investors.

Understanding these multifaceted factors is crucial for navigating the current altcoin market drops and comprehending their broader implications on the crypto investment landscape. As market conditions evolve, monitoring regulatory developments and macroeconomic indicators will be essential for anticipating future trends in altcoin prices and overall market sentiment.

Read On: Crypto Market Outlook 2024

Conclusion

The recent downturn in altcoin prices amid broader crypto market volatility has underscored the intricate relationship between Bitcoin’s movements and those of altcoins. As Bitcoin dipped to its lowest levels in four weeks, hovering around $65,100 after a 7.5% decline, altcoins experienced even sharper drops, with major assets plummeting by over 40% and on-chain altcoins seeing declines exceeding 70%. This period of market uncertainty has been shaped by several key factors.

The delay in listing spot Ethereum ETFs in the US, despite SEC approval, has contributed significantly to market apprehension. The intricate approval process involving 19b-4 and S1 forms has left investors cautious, awaiting clarity that could potentially elevate Ethereum to commodity status and attract institutional investments.

Moreover, macroeconomic factors such as the Federal Reserve’s hawkish stance, coupled with a strong US Dollar following ECB rate cuts, have created a challenging environment for altcoins, which thrive in low-interest-rate scenarios with ample liquidity.

Additionally, the diminishing retail investor interest, reflected in declining Google search trends for cryptos, has limited the influx of fresh capital needed to sustain altcoin momentum.

Looking ahead, navigating the complexities of the crypto landscape will require vigilance in monitoring regulatory developments and macroeconomic indicators. Understanding these dynamics will be crucial for investors and enthusiasts alike as they navigate the evolving market conditions and position themselves strategically amidst ongoing volatility.

By staying informed and adaptable, stakeholders can effectively anticipate shifts in altcoin prices and overall market sentiment, positioning themselves to capitalize on opportunities amidst the ebb and flow of the crypto market.