A recent analysis by
Glassnode, detailed in their
report from July 23rd, suggests that altcoin markets are showing extremely high leverage, creating conditions ripe for considerable price drops should current market trends falter.
The study observed a substantial increase in futures open interest for several altcoins. Specifically, the combined futures open interest for Ethereum (ETH), Solana (SOL), XRP (XRP), and Dogecoin (DOGE) rose sharply from $26 billion at the start of July to $44 billion. This represents a remarkable 69% jump in just a few weeks.
Moreover, the report indicates that daily increases have remained above the two-standard-deviation level for an unprecedented 12 consecutive days. This sustained upward trend suggests that traders are heavily investing in leveraged positions on these alternative cryptocurrencies.
The report further notes the rising costs associated with these positions. Traders holding long futures have collectively paid approximately $32.9 million in funding fees over the last month. This figure is approaching the $42 million seen around Bitcoin’s peak in March but remains below the $70 million peak observed in late 2024.
While high funding rates can indicate strong market confidence, they can also signal an overextended market susceptible to rapid corrections if price momentum falters.
Capital Shift Away from Bitcoin
Market speculation appears to be moving away from Bitcoin (BTC). Ethereum’s portion of the total open interest has increased to 38%, compared to Bitcoin’s 62%. This is the highest level for Ethereum since April 2023, with only a small percentage of days showing a greater share for ETH.
Perpetual trading volume shows an even greater shift. Ethereum has now surpassed Bitcoin in terms of volume dominance for the first time since the market bottom of the 2022 cycle. This marks a significant bias towards ETH in trading activity.
This change in focus suggests traders are seeking higher potential gains in altcoins as Bitcoin’s price stabilizes following its recent surge to an all-time high earlier this month. This surge briefly pushed Bitcoin’s market capitalization above $1 trillion before prices settled back below that peak.
Despite the shift, Bitcoin still dominates the overall crypto market, accounting for more than 64% of total market value. This concentration could limit altcoin rallies if Bitcoin experiences a downturn.
Altcoins Post Significant Weekly Gains
Glassnode’s “Altseason Indicator” turned positive on July 9th and has remained so. This was triggered by simultaneous capital inflows into both Bitcoin and Ethereum, an increase in stablecoin supply, and a positive momentum crossover in the aggregate altcoin market capitalization.
Altcoins have collectively gained $216 billion in value over the past two weeks, marking one of the largest dollar-value increases on record.
However, analysis of sector correlations reveals that many altcoins are moving in tandem with each other, while simultaneously diverging from Bitcoin. This pattern can create vulnerabilities within the altcoin ecosystem.
When leverage is high and assets are behaving similarly, even minor negative events can trigger a series of forced liquidations, leading to market instability.
The report concludes by warning that while the current altcoin rally is significant, traders should be aware of the potential for high volatility and substantial downside risks.