The crypto market just saw some slight recovery, but the performances are upside down. Opposite to the way sellouts usually play out, the Bitcoin dominance dropped dramatically as the asset is underperforming the Small Cap index.
From last Novemberโs $3 trillion market cap, the crypto market is now down to around $800 billion:
Smaller Altcoins Make A Strong Comeback
Last week the crypto market saw its bottom, followed now by some slight recovery. As per Arcane Researchโs latest weekly report, the smaller altcoins have also been seeing red numbers with the Small Cap index shedding 27%, but it has been the best performer overall.
In contrast, Bitcoin had dropped 35%. Through this small window of relief during June, we have seen the blue-chip coin underperform all other indexes.
As a result, BTCโs dominance in the market fell -1,51% this week to 43,5% while Ether fell -0,31. The latter has been declining since May from 19.5% to 15%.
Whatโs Making This Crypto Winter Colder
The report notes that the primary driver of this crypto crash has been the hedge fund Three Arrow Capital (3AC) collapse. Having invested over $200 million in Luna Foundation Guardโs token sale, 3ACโs liquidity ended up being wiped out and its margin call was the last straw for the already pressured market.
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As per the Wall Street Journal, the crypto hedge fund hired legal and financial advisers to help work out a solution for its investors and lenders. The firm is looking for a way out, โincluding asset sales and a rescue by another firmโ. The prognostic is not very positive at the moment, seeing the wave of liquidations and mitigations of losses by crypto exchanges that have followed the collapse.
โWe were not the first to get hitโฆThis has been all part of the same contagion that has affected many other firms,โ Kyle Davies, 3ACโs co-founder, said in an interview.
Arcane Research explained that โIn periods of insolvency, creditors unwind the most liquid assets first, which is likely the root cause of BTC and ETHโs relative underperformance in the last week.โ
The report adds that โilliquid altcoins are more challenging to sell at size, particularly during pressuring times, which explains why smaller coins have experienced less excessive selling pressure in the last weekโ.
Meanwhile, Microstrategy CEO Michael Saylor described the events around this winter as a โparade of horriblesโ in which the consequences of lack of regulation in the crypto field have made it possible for wash trading and cross-collateralized altcoins to weigh down on Bitcoin.
โWhat you have is a $400 billion cloud of opaque, unregistered securities trading without full and fair disclosure, and they are all cross-collateralized with Bitcoin.โ
โThe general public shouldnโt be buying unregistered securities from wildcat bankers that may or may not be there next Thursday,โ Saylor added, slamming at the recent collapses and suggesting that future actions by regulators could prevent the level of volatility that BTC is now experiencing.
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