Bitcoin's surge to an all time high on Thursday evoked mixed reactions from altcoins, with some outperforming the largest cryptocurrency by market cap and others lagging behind. And that's split along industry lines.

Tokens associated with decentralized finance (DeFi) and those from layer-2 blockchains are outperforming as investors transition to a risk-on approach. Others, such as tron (TRX), bitcoin cash (BCH), litecoin (LTC) and monero (XMR) are, in comparison, barely moving.

Even solana (SOL), the darling of the previous drive to record highs, seems to be taking a back seat, rising just 3.9% while the likes of sei (SEI), ethena (ENA) and optimism (OP) are celebrating gains of as much as 28%.

"Altcoins are leading the pack in this latest rally," Thomas Perfumo, Kraken's global economist, said in an email. A drop in bitcoin dominance is "reinforcing a broad-based rally with altcoins leading the charge."

During the 2017 and 2021 runs to record highs, bitcoin dominance — a measure of BTC's share of the total crypto market —rose rapidly. On Thursday's rally, it fell to 63.5% from 64%, indicating a shift in emphasis toward the altcoin market

Changing behavior patterns

Crypto markets are cyclical by nature. They run without interruption 24 hours a day against a backdrop of high volatility and low liquidity which can create an emotional trading environment. In previous cycles, altcoins often moved in unison, rising as bitcoin consolidated and dropping en masse when it rose or fell.

This time, however, seems different, possibly due to the increased participation of institutions in the the industry. The rise in DeFi tokens can be attributed to increasing institutional interest in ether (ETH), which could pave the way for a search for yield with firms battling to secure the highest returns.

The same can be said for layer-2 networks. As institutions run into the Ethereum blockchain's issues with latency and efficiency, they may consider networks like Arbitrum that allow liquidity to flow from decentralized exchanges to staking protocols at a fast rate. That network's ARB token is up 15% in the past 24 hours.

Not so sanguine

Still, Petr Kozyakov, CEO at payments firm Mercuryo, said the rise in altcoins will be short-lived.

"While altcoins are also in the green with Ethereum spiking past the $3,000 mark, the underlying ‘orange pill’ narrative remains steadfastly in place," he said. "Bitcoin’s growing status as a store of value is one that more and more big players and institutions are simply unable to ignore."

That's not a narrative that finds much support from Arthur Hayes, the BitMEX founder turned fund manager.

“Get ready for a monster alt season,” he told his followers on X after predicting that ETH would reach $10,000 this cycle.

If Hayes’ prediction holds true, bitcoin could face short-term difficulty as liquidity will inevitably flow into the altcoin market as traders attempt to capture speculative gains. This could also be a hammer blow to the old-school crypto coins, which all lack major catalysts for a boost.

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