Is the rally in small-cap crypto assets a sign of a return to risk appetite?

The crypto market has just seen some minor recovery, but the performance is upside down. Contrary to the usual sell-off, Bitcoin’s dominance dropped sharply as the asset underperformed the small-cap index.

From a market cap of $3 trillion in November last year, the crypto market is now down to around $800 billion:

On the daily chart, the total market value of cryptocurrencies fell to $879.871 billion | DayDayNews resources: TradingView.com

Smaller altcoins make a strong comeback

Crypto markets bottomed out last week, followed by some Slight recovery. according to The latest weekly report from Arcane Researchsmaller altcoins also posted red numbers, and the small-cap index fell 27%, but it has been The best overall performance.

In contrast, Bitcoin fell 35%. Through this small window in June, we see blue chip coins underperforming all other indices.

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Bitcoin Underperformed All Crypto Indices in June | Source: Arcane Research

As a result, BTC’s dominance of the market fell -1.51% to 43.5% this week, while Ether fell -0.31. The latter has been down from 19.5% to 15% since May.

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Bitcoin dominance drops sharply while altcoins lead | Source: Arcane Research

What’s making this crypto winter colder

The report stated that the main driver of this cryptocurrency crash was the collapse of hedge fund Three Arrows Capital (3AC). After investing more than $200 million in Luna Foundation Guard’s token sale, 3AC’s liquidity was finally wiped out, and its margin call was the last straw for an already stressed market.

Related reading | How long will CryptoWinter last?Cardano founder provides answers

according to Wall Street Journal, cryptocurrency hedge funds have hired legal and financial advisors to help develop solutions for their investors and lenders. The company is looking for a way out, “including an asset sale and a rescue from another company.” Current forecasts are not very optimistic, seeing a wave of liquidations and loss mitigation on cryptocurrency exchanges following the crash.

“We’re not the first to be hit… This has been part of the same contagion that has affected many other companies,” 3AC co-founder Kyle Davis said in an interview.

“During bankruptcy, creditors unload the most liquid assets first, which may be the root cause of the relative underperformance of BTC and ETH last week,” explained Arcane Research.

The report added that “Illiquid altcoins are more challenging to sell at scale, especially during times of stress, which explains why smaller coins experienced less over-selling pressure in the last week”.

Meanwhile, Microstrategy CEO Michael Saylor describe The events of this winter were a “terrible parade” in which the fallout from the lack of regulation in the cryptocurrency space made it possible for wash-traded and cross-collateralized altcoins to weigh on Bitcoin.

“What you have is a $400 billion cloud of opaque, unregistered securities exchanges with no full and fair disclosure, and they’re all cross-collateralized with bitcoin.”

“The public should not be buying unregistered securities from wildcat bankers that may or may not show up next Thursday,” added Saylor, slamming the latest crash and suggesting future action by regulators could be Would prevent BTC from experiencing the volatility level it is now.

Related reading | Crypto Investors Find Safety in Stablecoins, Bitcoin, Mass Dumping Altcoins

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