Altcoins Underperform, Liquidity is a Key Factor for Price Increase

Since the launch of the ETH spot ETF in the US last summer, ETH's dominance has decreased by nearly 50%. If ETH is the "fuel" driving the crypto economy, the current state of the crypto economy resembles a deep recession.

However, ETH is not the only altcoin that has underperformed compared to BTC. Over the past year, many altcoin narratives have emerged and disappeared in succession—from Dogecoin derivatives to virtual tokens to Trump-themed tokens. These tokens typically follow a similar pattern: they first experience a rapid surge in enthusiasm, followed by a swift decline, forming a pyramid-like price structure, accompanied by a prolonged period of stagnation.

For altcoins to achieve significant upward movement, we need to see real-world applications driving demand growth, or a liquidity surge similar to the 2020-2021 cycle. Historically, we have only seen significant growth in altcoins during periods of ample liquidity. However, based on the indicators we track, the likelihood of a significant influx of liquidity into the crypto market appears low—making the probability of a large-scale rise in altcoins in the short term quite low.

Limited Market Speculation, BTC Needs a Catalyst for Price Increase

Recently, the minting of stablecoins has sharply declined, a micro liquidity signal that supports BTC potentially maintaining a range of $80,000 to $90,000 in the short term. However, it is unlikely to come to a complete halt. Trading volumes (including BTC ETF trading volumes) remain sluggish, indicating limited market speculation.

However, for BTC to achieve sustained upward movement, it still requires a catalyst, which may take one of the following three forms of liquidity:

(1) The Federal Reserve signaling a dovish stance or cutting interest rates;

(2) Micro-level liquidity, such as growth in stablecoins and increased futures leverage;

(3) Macro-level liquidity, such as growth in money supply or other government-driven stimulus measures.

Weak Performance in US Stocks May Further Boost BTC Prices

The US Federal Reserve may maintain interest rates over the summer to assess the inflation impact of Trump's proposed tariffs. Although the market expects four interest rate cuts in 2025, Fed Chair Powell has emphasized a cautious approach when evaluating the economic impact of these proposals. Investors seem distracted by underperforming stock portfolios, while Trump's push for renegotiating trade agreements and reshaping the global order has a significant impact on the market.

Interestingly, this has weakened the performance of the dollar. As global money supply is typically measured in dollars, a weaker dollar mechanically increases the money supply. This effect supports BTC prices. In past bear markets, BTC's viability was often questioned, primarily due to concerns over regulatory crackdowns or outright bans. However, this risk has now significantly diminished, which partly explains why BTC has performed much better in the current adjustment compared to previous cycles.

Disclaimer: The market carries risks, and investment should be approached with caution. This article does not constitute investment advice. Trading in digital assets can involve significant risks and volatility. Investment decisions should be made after careful consideration of personal circumstances and consultation with financial professionals. Matrixport is not responsible for any investment decisions made based on the information provided herein.

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