Bitcoin (BTC) has fallen 9% in the past 24 hours. Two days ago (January 4, 2022), Bitcoin made a small dip from €41,500 to €39,750, after which the market seemed to recover quickly.
However, last night the Bitcoin price still collapsed with a drop from €41,150 to €37,790 in a matter of hours. The price is currently trying to find a bottom somewhere around €38,000. But why is Bitcoin falling today?
The U.S. Fed, or central bank of the United States, is hinting at a possible interest rate hike in March, which is sooner than many people expected. The reasons for this possible interest rate increase are, according to the Fed, high inflation that continues to rise and the tight labor market.
An interest rate increase is generally bad for investments because borrowing money is more expensive and saving money is more attractive. Thus, when interest rates are higher, there will be less borrowing and more savings, which ultimately results in less investment.
Not only Bitcoin but also the stock markets react to this by falling. In the US the stock exchanges are falling, but even in the Netherlands, the AEX is reacting with a substantial drop. Incidentally, the rest of the crypto market is falling along with Bitcoin, as we see more often.
Bitcoin dominance is falling, how come?
Bitcoin dominance, a percentage representing BTC's market capitalization relative to total crypto market capitalization, fell further to 39% on January 5. This brings it to its lowest point since April 2018, when crypto was in a bear market.
At the same time, Ethereum dominance is increasing, meaning that the market is therefore moving more towards altcoins rather than Bitcoin. However, this is striking for the phase we are in now.
Bitcoin has been declining for a month or two. It reached a high of €60,500 in October and a low of €37,790 today. Normally, during periods of market panic and declines, we see traders selling altcoins and putting this money into Bitcoin, resulting in higher Bitcoin dominance.
Recently, we have seen the opposite in the market, Bitcoin is falling, but Bitcoin dominance is also falling. In contrast, Ethereum dominance has only increased in recent months.
Bitcoin's market capitalization is now only twice that of Ethereum. Although Ethereum also fell hard after the news of the possible interest rate increase in the US, Ethereum has been performing a lot better than Bitcoin in recent times. The ETH price now stands at €2,976, after falling 11.77% over the past 24 hours.
Ethereum is the most widely used smart-contract platform and developers are working hard to increase transaction speeds and reduce transaction costs.
So for many people, Ethereum is a good alternative to Bitcoin. Bitcoin has not yet lost its leadership position in the market, but it must increasingly give way to other revolutionary altcoins.
How are other altcoins performing?
Looking at the top 100 cryptocurrencies, today (January 6, 2022) we see only red. The entire market is suffering after the news from the US, yet some cryptocurrencies are outperforming others.
One of the big winners over the past 7 days is Chainlink (LINK). LINK rose 23% in the past 7 days and is now at €21.45 with 17th place in the CoinMarketCap ranking. However, the coin is still far from its all-time high earlier this year of €46.
Other altcoins that performed well while the rest of the market underperformed were: NEAR, ATOM, FTM, ICP, ONE and RVN.
However, Bitcoin has fallen through a key support level of €40,700 and now appears to be in a downtrend towards €36,000. If it fails to find support there, experts say there is a possibility that a longer period of declines for Bitcoin and the rest of the crypto market is imminent.