Cryptocurrency analytics firm Alphractal has sounded the alarm regarding the current state of the market, noting that altcoins are diverging from Bitcoin in a way that could signal major volatility ahead.
Alphractal’s Correlation Heatmap, which tracks the relationship between altcoin and Bitcoin price movements, shows a trend toward negative correlation. Historically, negative correlations have often preceded significant fluctuations in the cryptocurrency market.
The analytics company said the following in its statement on the subject:
“When the correlation is close to 1, altcoins follow Bitcoin closely, whether it rises or falls. However, negative or near zero values indicate that altcoins move independently.”
According to the analytics firm, this divergence suggests that the crypto market may be preparing for significant price swings, as such phases rarely last long.
Following Bitcoin’s recent rally, traders have focused on altcoins, increasing the Long/Short ratio for popular tokens such as ETH, DOGE, SHIB, DOT, KAS, FET, ARB, TIA, and GALA.
“Altcoins with a Long/Short Ratio above 3 are currently experiencing price recoveries,” Alphractal said.
But the firm warned that market makers could apply selling pressure to liquidate these positions, a common tactic during periods of high leverage.
Alphractal highlighted the historical pattern of local tops forming when altcoin Long/Short Ratios rise significantly relative to Bitcoin. Conversely, local bottoms for Bitcoin typically coincide with a higher Bitcoin Long/Short Ratio relative to altcoins.
While many investors believe Bitcoin’s recent gains will spark an altcoin rally, Alphractal noted that the past year has presented increasingly challenging conditions for such follow-on momentum.
“Market makers are closely monitoring leveraged positions, potentially limiting short-term gains in altcoins,” the firm said.
Despite the risks, Alphractal noted that sharp changes in derivatives market benchmarks often precede strong recoveries. These indicators typically affect time frames ranging from days to weeks and have minimal impact on long-term trends, the firm noted.
*This is not investment advice.