Recent market dynamics have positioned Ethereum at the center of a notable downturn in the altcoin sector, driving numerous leading cryptocurrencies beneath key price thresholds. Market expert has utilized the social media platform X to dissect the elements driving this downturn and examine the prospects for a recovery rally in 2026. Experts kicked off his analysis by examining the significance of Bitcoin dominance within the market landscape. As Bitcoin’s dominance rises, capital typically consolidates within the asset itself, rather than flowing out into the wider cryptocurrency market. This suggests that Bitcoin is emerging as a safe haven for investors, while altcoins are evolving into liquidity sources.
Consequently, risk tends to compress before any expansion, a trend that has been consistently noted in earlier cycles prior to altcoins regaining their momentum. Another contributing factor to the ongoing turmoil is tax-loss harvesting. Cryptocurrencies stand out as one of the few significant asset classes that have experienced declines since January 1st, while equities and gold have shown positive performance. In a strategic move to secure losses ahead of the year-end, funds are diligently offloading unprofitable altcoin positions, crypto exchange-traded funds, and various high-risk assets. Experts observed that this pressure is expected to ease as we approach the new year.
The expert emphasized that liquidity often operates on a lagging basis. While the Federal Reserve has begun to inject liquidity back into the system, market reactions are usually not immediate. Historically, we see that improvements in liquidity take the lead, followed by Bitcoin finding its stability, while altcoins tend to lag behind in this progression. The market is presently in the lag phase, still awaiting the expected breakout. Amid low volatility, stagnant Bitcoin prices, and declining altcoins, notes that it brings to mind past cycles, reminiscent of the early 2019 and early 2023 recoveries.
The recent decline in the altcoin market can be linked to a variety of interconnected factors: increasing Bitcoin dominance, the culmination of tax-loss selling, limited liquidity, waning demand, and the lagging impacts of macro liquidity. Rather than a capitulation scenario, the expert indicates that this moment seems to signify compression—a phase that often comes before substantial recoveries.