Short-term correlation with the Russell 2000 is starting to weaken, although long-term trends are still in alignment. Currently, Bitcoin dominance (BTC.D) remains around 59%, with the altseason index at 37, indicating a closely contested market.
While there hasn’t been a definitive breakout yet, there is mounting pressure.
Shifting Near-Term Dynamics
Over the past two years, altcoins and small-cap U.S. stocks have exhibited a strong correlation.
The long-term correlation between Total 3 and the Russell 2000 has hovered around 0.75 since early 2024, suggesting that both markets respond similarly to liquidity shifts and changes in risk appetite.
However, a recent change has emerged.
Source: X
The 30-day and 90-day correlations have moved towards the lower end of their typical ranges, indicating a temporary divergence between altcoins and small caps.
These fluctuations resemble oscillations rather than fixed relationships, signaling a period of consolidation and building pressure in the crypto market.
Source: TradingView
With BTC.D at 59% and the altseason index at 37, the market contraction is evident.
Source: CoinGlass
Historical Precedents
In previous cycles, when short-term correlations weakened but the broader trend remained intact, the lagging market eventually caught up.
Total 3 has often rebounded when liquidity stabilized and high-beta assets regained favor.
These transitional phases are primarily about timing, representing temporary pauses where one market consolidates while the other continues to rise. Mean reversion typically occurs when the gap becomes too wide.
Source: X
Altcoin volatility has been decreasing since 2017, and similar contractions in the past have often preceded significant expansions.
If macro conditions remain favorable and the Russell 2000 sustains its breakout, the situation could once again favor altcoins. The correlation suggests that once short-term discrepancies stabilize, Total 3 might mirror the strength seen in small caps.
AMBCrypto previously noted that market-wide fear and a rejection in Tether Dominance at the crucial 6.47% level have coincided with major crypto bottoms, indicating that the current contraction may be part of a broader bottoming process.
The approval of crypto ETFs by Vanguard and Ethereum’s Fusaka upgrade going live were also highlighted as potential catalysts that could support an altcoin resurgence once volatility expands.
Closing Remarks
- Short-term correlations are weakening, tightening the market and increasing the likelihood of an altcoin breakthrough.
- With BTC.D at 59% and the altseason index stagnant at 37, a mean-reversion phase may be on the horizon.