As Bitcoin Selloff Resumes, Crypto Markets Could Be Headed for New Lows

Bitcoin’s sharp and sudden reversal on Monday hastened the decline of altcoins and tokens, which have struggled to regain their footing since the bear market took a turn for the worse in November. The rapid decline has put crypto markets on track to test new yearly lows in the short term. Paradoxically, whether or not they cross that plateau depends largely on bitcoin.

Market Update

The combined value of all cryptocurrencies fell to $111 billion on Tuesday, according to CoinMarketCap. Not only was that a six-week low, it was only $11 billion higher than the depths of the bear market in early December.

Monday’s selloff, which amounted to roughly $7 billion, came after weeks of relative calm for bitcoin and the broader market. In crypto, “relative calm” often translates into a lack of direction and momentum. Whenever a lack of movement is observed, a sharp move higher or lower is usually followed. Since last summer, calm periods are usually followed by big moves lower.

The worse of the selloff appears to be over for now, as bitcoin consolidates north of $3,400 and major altcoins stem their decline. Presently, the total market was valued at $113.1 billion. There were no major movers within the top ten.

Gain further insight: Bitcoin Trapped Under Bearish Pressure; Further Losses Eyed.

Here is a current view of the biggest blockchains.

Tether has rocketed through the market cap rankings as other top coins declined. Largely used as a funding currency to trade against bitcoin and other cryptocurrencies, Tether holdings usually rise during periods of instability. Holding USDT smooths out some of the risks associated with trading cryptocurrency on virtual currency exchanges.

At the time of writing, Tether was the fourth-largest cryptocurrency by capitalization. It’s being followed closely by EOS and bitcoin cash.

Bitcoin Holds the Key

The crypto meltdown of 2018 had many defining characteristics, chief among them being the ever-growing dominance of bitcoin as a major bellwether. That is, bitcoin’s status as major influencer returned after its relative standing had diminished during the height of the bull market in January 2018. During that period, bitcoin accounted for roughly a third of the total cryptocurrency market, down from a high of around 90% just 12 months earlier. Now, bitcoin’s dominance rate has skyrocketed back to over half and looks to be growing again as the bear market deepens.

As of Tuesday, bitcoin’s dominance rate was 53.4%, having grown by one percentage point in less than 48 hours. The dominance rate may continue to rise as bitcoin exerts a stronger gravitational pull on its peers.

For many in the crypto industry, a decoupling of bitcoin and altcoins is necessary for long-term growth and stability. That the opposite has occurred is a strong sign that an altcoin extinction event may be near. This view is shared by Xapo President Ted Rogers and Ethereum co-founder Vitalik Buterin, who believe that 90% of altcoins and tokens are on their way out.

“90%+ of CoinMarketCap list will disappear eventually,” Rogers predicted last summer.

Read more: The Long-Awaited Altcoin Extinction Event May Be Near.

As the recent ICO bust demonstrates, demand for ‘whitepaper cryptocurrencies’ has all but disappeared. This will lead to further industry consolidation in the short term as investors seek out and verify the highest quality projects available. In the meantime, bitcoin’s dominance will likely continue to grow.

Disclaimer: The author owns Bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Chief Editor to and Contributor to, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi