On Wednesday, the latest U.S. core PCE price index for October rose by 2.8% year-on-year, in line with expectations but still above the Federal Reserve's target of 2%. This data further exacerbated market concerns about persistent inflation and raised questions about the effectiveness of the Federal Reserve's monetary policy tightening.
Crescat Capital macro strategist Tavi Costa stated that the Federal Reserve is facing a tricky policy dilemma. He warned that the risk of a second wave of inflation seems to be brewing. If this situation comes true, the Federal Reserve will face a tough choice: further rate hikes could exacerbate government debt burdens, while slowing down rate hikes could lead to uncontrollable inflation.
U.S. stocks fell in response, while the crypto market rose against the trend.
In the face of inflation pressures and uncertainty surrounding Federal Reserve policies, traditional financial markets have been cautious. All three major U.S. stock indices declined. By the close, the S&P 500, Dow Jones, and Nasdaq fell by 0.42%, 0.30%, and 0.66%, respectively.
However, the crypto market has shown strong resilience. Bitcoin's price surged significantly on Wednesday, breaking through the $97,000 mark, while Ethereum rose over 10%, reaching a new high in months. Ethereum (ETH) increased by 10%, hitting a daily high of $3,687.01, the highest since June.
The top 200 tokens by market capitalization saw widespread gains. Among them, Kadena (KDA) had the highest increase at 25.3%; followed by Uniswap (UNI) with a rise of 23.7%; and PancakeSwap (CAKE) with an increase of 22%.
The current total market capitalization of cryptocurrencies is $3.34 trillion, with Bitcoin's market share at 57.1%.
Capital rotation, is the altcoin season coming?
Coinglass data shows that Ethereum ETFs recorded positive fund inflows for three consecutive days, with a net inflow of up to $40.6 million on Tuesday. This trend sharply contrasts with the continuous net outflows from Bitcoin ETFs. QCP Capital analysts point out that the market is shifting funds from Bitcoin to Ethereum and altcoins. This phenomenon is closely related not only to investors' expectations of an altcoin season but also to the strong performance of Ethereum's ecosystem and derivatives market.
Analysts stated: "After the decline in Bitcoin, Ethereum is making a comeback, with signs indicating that the market is shifting funds toward ETH and altcoins." Since dropping to a low of $0.3204 on November 21, the ETH/BTC ratio (measuring ETH's performance relative to BTC) has surged over 15%.
The rise of ETH is accompanied by strong bullish sentiment in its derivatives market. According to Coinglass data, ETH open interest (OI) hit a historical high of 6.55 million ETH on Wednesday, worth $23.34 billion, continuing the growth momentum of the past two weeks. Additionally, data from Velo shows that the three-month premium of ETH on cryptocurrency exchanges Binance, OKX, and Deribit has soared to 16%.
Although the market is generally optimistic about the arrival of an altcoin season, CryptoQuant founder and CEO Ki Young Ju believes that the lack of new retail capital may delay the altcoin season. Ki Young Ju stated, "For altcoins to reach historical market highs, a significant inflow of new capital into cryptocurrency exchanges is required. The current market cap of altcoins being below previous historical highs indicates a reduction in liquidity from new exchange users."
The analyst concluded that altcoins should focus on developing independent strategies to attract new capital rather than relying on Bitcoin's momentum, but he remains "optimistic" about altcoins.
