Altcoin Rally Loses Momentum as Investors Scale Back Bullish Positions

By Omkar Godbole (All times ET unless indicated otherwise) The ongoing consolidation of Bitcoin's price at $85,464.43 is stifling the bull run in the broader cryptocurrency market, which had previously fueled hopes for an extended altcoin season characterized by the sustained outperformance of alternative digital currencies. In the last 24 hours, major altcoins have experienced significant declines, with the payments-focused XRP dropping by double digits and SOL sliding by 8%. The CoinDesk 80 Index, a tracker of altcoin performance, has fallen over 7%, while the CoinDesk 20 Index, which is dominated by Bitcoin and Ether, has decreased by 4%. According to Alex Kuptsikevich, chief market analyst at FxPro, 'The crypto market experienced a sharp decline, losing nearly 4% of its market capitalization over the past 24 hours. Without the growth of Bitcoin, altcoins, which had been driving the market upward in previous days, are now being sold off. Forty-eight of the top 100 altcoins are experiencing double-digit losses over 24 hours, while only three are showing gains.' Meanwhile, social media is filled with discussions about approximately $2 billion worth of Ether waiting to be unstaked, with over 475 Ethereum validators awaiting exit. This development has drawn comparisons to January 2024, when large-scale unstaking marked a temporary price peak. The recent surge in unstaking appears to be driven by the soaring Ether borrowing rates on decentralized platforms like Aave, which have diminished the appeal of looping strategies designed to boost Ether staking yields. These strategies typically involve users depositing liquidity staking (LST) or liquid restaking tokens (LRT) as collateral on platforms like AAVE and borrowing ETH. The borrowed ETH is then converted to LRT and LSTs and redeposited, creating a loop. This strategy is effective when staking yields exceed borrowing costs. However, with borrowing costs rising, the loop is likely being reversed, prompting traders to rush to repay loans, exit LST/LRT positions, and reclaim ETH. Pseudonymous observer Degen Station noted on X, 'The real trigger is the significant increase in ETH borrowing rates since July 16, peaking at 18%. This forced the mass unwinding of ETH leverage loops on Aave, as negative yield spreads crushed profitability. Traders are rushing to repay loans, exit LST/LRT positions, and reclaim ETH — causing depegs and queue congestion.' It added that arbitrageurs are now buying LSTs and LRTs at a discount to redeem them for Ether, exacerbating the issue, while demand for new staking remains strong. In essence, the large queue for unstaking is not necessarily a bearish signal. In other key news, Tether CEO Paolo Ardoino stated that the company plans to re-enter the U.S. market with stablecoin offerings for payments, interbank settlements, and trading. In traditional markets, major currencies traded flat against the U.S. dollar, except for the risk-sensitive AUD/USD pair, which crossed above resistance at 0.66. Traders are closely watching for signs of sustainability, as failure could be a harbinger of broad-based risk aversion. Stay Alert! What to Watch Token Events Conferences The CoinDesk Policy & Regulation conference (formerly known as State of Crypto) is a one-day boutique event held in Washington on Sept. 10 that allows general counsels, compliance officers, and regulatory executives to meet with public officials responsible for crypto legislation and regulatory oversight. Space is limited. Token Talk By Shaurya Malwa Derivatives Positioning Market Movements Bitcoin Stats Technical Analysis Crypto Equities ETF Flows Spot BTC ETFs Spot ETH ETFs Source: Farside Investors Overnight Flows Chart of the Day While You Were Sleeping In the Ether