The dominance of Bitcoin (BTC) is displaying a bearish divergence, indicating a potential weakening in its market share compared to the overall cryptocurrency market capitalization.
Despite this, the Relative Strength Index (RSI) has not yet issued a sell signal, suggesting that the bearish momentum has not entirely taken over – at least not yet.
Could Bitcoin be gearing up for a retreat, or is this just a momentary period of cooling off?
A Crucial Week on the Horizon for Bitcoin
In early February, BTC dominance experienced a 5% surge following a widespread market disruption triggered by shifts in Trump’s tariff policies, leading to a loss of over $420 billion in the crypto market cap.
While panic swept through, Bitcoin remained resilient as altcoins faltered, witnessing many high-cap altcoins plummeting to new lows against BTC.
Historical data indicates that Bitcoin’s consolidation phases often pave the way for rallies in altcoins. Last year in Q2, when BTC fluctuated between $60K and $70K, Ethereum (ETH) witnessed a significant surge, registering a 19% daily increase with its lengthiest green candlestick.
Given that high-cap altcoins are already showing weekly advancements, a similar pattern may unfold once more. Bitcoin futures traders should exercise caution as sentiment leans towards bullishness, marked by a surge in long positions.
However, with a bearish divergence in play, there looms the risk of substantial liquidations in the next few days, potentially setting the stage for a considerable long squeeze.
Is this Shake-up Merely a Temporary Respite?
Throughout this month, Bitcoin has witnessed a drop of over $1 trillion in market capitalization, plunging from its peak of $2.10 trillion at the close of January.
As market sentiment embraces fear, a recovery for BTC seems distant for now.
If Bitcoin’s dominance continues to decline, there’s a possibility of the fear index plunging into ‘extreme’ levels, potentially paving the way for panic-driven sell-offs – a factor worth monitoring in the days ahead.
Yet, there has been a minor uptick in the index, with the momentum now in a neutral state. The RSI has not completely shifted to a bearish stance, leaving room for a potential reversal.
Altcoins are currently experiencing a 5% pullback in daily price movements, hinting that the recent upsurge might be a mere phase of cooldown, rather than the initiation of a full-fledged altcoin season.
Retaining a close eye on the futures market remains crucial to prevent the RSI from plummeting further, as it poses a significant threat to Bitcoin’s dominance.