Are Small Cap Crypto Assets Rebounding A Sign Risk Appetite Returning?

Although there was a slight rebound in crypto markets, the performance is not good. Contrary to how sellouts typically play out, Bitcoin’s dominance has fallen dramatically because the asset is performing poorly in the Small Cap index.

From last November’s $3 trillion market cap, the crypto market is now down to around $800 billion:

Source:| Source:

Altcoins of smaller size make strong comeback

This week saw the bottom of crypto markets, with some following it now. There is a slight recovery. As per Arcane Research’s latest weekly report, the smaller altcoins have also been seeing red numbers with the Small Cap index shedding 27%, but it has been The overall best performer.

Bitcoin dropped 35% in contrast. We’ve seen Bitcoin perform below all the other indexes in this tiny window of relief that occurred during June.

Source: Arcane Research| Source: Arcane Research

As a result, BTC’s dominance in the market fell -1,51% this week to 43,5% while Ether fell -0,31. Since May, the latter is in decline from 19.5% down to 15%.

The dominance of Bitcoin is in decline, while altcoins are taking the lead. Source: Arcane Research| Source: Arcane Research

What’s Making This Crypto Winter Colder

According to the report, the collapse of hedge fund Three Arrow Capital (3AC), was the main driver for the crypto crash. Having invested over $200 million in Luna Foundation Guard’s token sale, 3AC’s liquidity ended up being wiped out and its margin call was the last straw for the already pressured market.

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The Wall Street Journal reports that the hedge fund used legal and financial consultants to assist in finding a solution for investors and lenders. The firm is looking for a way out, “including asset sales and a rescue by another firm”. The current outlook isn’t very optimistic, considering the wave of liquidations that has followed the collapse and the mitigation of losses via crypto exchanges.

“We were not the first to get hit…This has been all part of the same contagion that has affected many other firms,” Kyle Davies, 3AC’s co-founder, said in an interview.

Arcane Research explained that “In periods of insolvency, creditors unwind the most liquid assets first, which is likely the root cause of BTC and ETH’s relative underperformance in the last week.”

The report adds that “illiquid 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 week”.

Meanwhile, Microstrategy CEO Michael Saylor described the events around this winter as a “parade of horribles” 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.

“What 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.”

“The general public shouldn’t be buying unregistered securities from wildcat bankers that may or may not be there next Thursday,” 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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