Ethereum, XRP, and Solana all fell in value on the day, with major tokens registering "outsized drawdowns" relative to Bitcoin. Analysts say the slide has largely been prompted by macroeconomic pressures, along with a natural hangover from the "strength and momentum" altcoins built up over recent months.

The total market capitalization of all cryptocurrencies dropped by 2.5% to $2.8 trillion over the past 24 hours. Ethereum declined 5.5% to a $289 billion market cap, XRP fell 5.1% to $82.4 billion, and Solana slipped 3.8% to $60.6 billion. Industry leader Bitcoin, meanwhile, slipped 3.1% on the day and 2.6% on the week, sitting at a market cap of $1.6 trillion—a comparatively modest decline that left the altcoin majors underperforming the market across the board.

Macro Pressures in Focus

The declines came after the consumer price index, the inflation gauge most closely watched for clues on Federal Reserve policy, rose 3.7% in the year to September, as Decrypt reported on Wednesday. The inflation print has lifted expectations that the Federal Reserve could raise interest rates in October, with Myriad predictors pointing to a 28% chance of such a hike. (Disclaimer: Myriad is a prediction market operated by Decrypt's parent company, Dastan.)

Nick Forster, founder of options trading exchange Derive.xyz, said in a note shared with Decrypt that the data shifted traders into "protection mode," as "hedging activity" on the platform doubled and whales pulled back on optimistic bets made in spring. Hedging, in this context, refers to positioning designed to offset potential losses rather than to bet on further gains.

"This immediate pull-back from long-term upside bets alongside aggressive short-term hedging shows a dramatic regime shift," he said, "with institutional participants rapidly reassessing their macro risk exposure as the path for interest rates turns murky again."

Luke Nolan, senior research associate at CoinShares, said altcoins are impacted the most when markets react this way. "[It] seems to be high beta assets just got hit harder, similar to in equities as well, where the high flyers have seen outsized drawdowns in recent sessions," Nolan told Decrypt. "Alts are typically more sensitive to financial conditions, and tightening affects the premise of liquidity expanding." High beta assets are those that tend to move with greater magnitude than the broader market, which helps explain why the altcoin majors' single-day declines outpaced Bitcoin's.

Nolan also highlighted the U.S. dollar hitting a near 18-month high as a downward pressure on the entire crypto market. Over a medium-term horizon, he said, crypto tends to have an inverse correlation to the US Dollar Index, or DXY. This is partly due to crypto being priced in dollars, Nolan explained, but also because a rising dollar causes a tightening in liquidity and a fall in risk appetite.

A Hangover From a Strong Run

Max Shannon, senior associate at Bitwise Europe, told Decrypt that the slide is also a hangover from altcoins' "strength and momentum" over recent months. Since the start of October, futures open interest—a measure of the total value of outstanding futures contracts—in altcoins excluding Ethereum has fallen by $8 billion, Shannon said, showing that traders have "taken chips off the table" in a natural reaction after such a strong run.

That pattern is playing out with Ethereum, he added. ETH outperformed Bitcoin for three consecutive months—the first time it has managed that since March 2021—and investors have been cashing in since. Ethereum ETFs saw 11 straight trading days of net outflows totaling $782.8 million, he said, before a brief inflow on Tuesday. Money has been heading back out since, with $129.5 million in net outflows, per CoinGlass data. Net outflows mean withdrawals from the funds exceeded new money coming in over the period.

"This price action is more of a consolidation period for altcoins that have already done well," Shannon told Decrypt. "Altcoins generally tend to exhibit high correlations with BTC in tough times and lower correlations, especially with idiosyncratic catalysts, in better market environments. Hence, for the near term, it is possible that these altcoins trade in lockstep with BTC, albeit more sensitively."

Outlook Hinges on Rate Expectations

For prices to recover, Nolan said he wants to see expectations of an interest rate hike in October fall. Right now, he struggles to call a bottom for altcoins, as he sees valid arguments for movements in either direction.

"I could see a situation where Bitcoin loses its support and altcoins likely bleed further," Nolan told Decrypt. "The opposite could also be true: this could be just a short-term correction, and we could be back into decent market conditions soon, which if Bitcoin was to push back decently above 80k, I could very well see an outsized up move for altcoins."