What Bitcoin’s Dominance Says About The State Of The Crypto Market

If the prolonged bear market that we’re in has shown us one thing, it’s that Bitcoin is still the king of crypto. The market’s continuous, slow bleed throughout the year has on several occasions brought the total market cap below $200 billion in September, and lately it’s been hovering around the same levels as November last year. And we’re not out of the woods yet. However, Bitcoin dominance — the demand for Bitcoin compared to other cryptocurrencies — is growing at a disproportionate rate to the total market cap.

In fact, Bitcoin dominance has passed 51 percent at the time of writing (down from 55 percent a couple of days ago).

Dominance was at its lowest during the bull run in January when most other cryptocurrencies, also known as altcoins, or just alts, were booming. However, up until the bull run started, dominance was growing, and we see the same thing happening. If we’re following trends, this could be an indication that another run is getting closer.

Bitcoin’s popularity usually rises during bearish times and there are a few explanations for this. It’s obviously the one high-profile currency everyone has heard about and is therefore a natural choice for crypto neophytes. Also worth noting is the high correlation between the price of Bitcoin and altcoins. They have always been strongly coupled. However, with its relatively low volatility compared to other cryptocurrencies, Bitcoin is considered a safe haven in bear markets. After all, it’s only retracted 75 percent from its all-time high, whereas the majority of altcoins are down 80-95 percent from their peaks.

This difference isn’t really surprising, as a coin’s price movements are primarily a function of liquidity. Bitcoin has higher volume and market cap than any other coin and its thicker order books mean smaller movements. This is why traders who employ proper risk management often move funds into Bitcoin when they believe the market is going down and then back into altcoins when arrows point upwards again. Alts rise higher and fall harder.

This also makes Bitcoin a good option for risk averse investors who are uncomfortable holding positions in altcoins but don’t want to exit the markets. Tether (USDT), a stablecoin pegged to the US dollar, obviously offers the strongest store of value proposition when all crypto prices are dropping, and offers an alternative to going fiat, but it’s been struggling to gain trust from the general crypto community due to ongoing controversy and speculation about whether it truly has the dollars in reserve to back its tokens.

Adding to this, Bitcoin is still the only universal on- and off-ramp to the crypto world. Whichever coin or token you want to buy, the first step is usually spending your fiat on some Bitcoin and then trading that for other assets — or, if you’re a more experienced gambler trader, you can long or short it with margin trading. It’s the same procedure the other way around as well: If you want to sell, you likely have to go through Bitcoin before cashing out to fiat.

And although the exchanges have been launching more trading pairs with Ethereum and USDT this year, most traders tend to stick with the Bitcoin pairs as they hold the most volume. Another point is that among most traders, the goal is always to accumulate more BTC, not USD, and the preferred denomination of prices is in Satoshis, or sats for short.

So, with Bitcoin involved in most of the market action, shouldn’t its dominance be even higher? We don’t have to go further back than to March 2017 to find it at 85 percent. Fast forward to June the same year. Everyone now wants in on Ether and the hottest ICOs, and the percentage drops to 40. Back to present-day, the around 2,000 altcoins currently listed on CoinMarketCap is not only a sign of greed among unnecessary ICOs but also of a protocol, dapp, and token race spun out of control. Enabling anyone to create a new cryptocurrency in an hour has heavily diluted Bitcoin’s market share.

More than 1,600 of the altcoins out there have a market cap between $10 million and zero. But they have no liquidity, no trading volumes. Look at Rubycoin or LEOcoin for example. They both rank relatively high on CoinMarketCap with market caps of about $10 million and $13 million, but their daily trading volumes are close to zero. There are hundreds of coins out there like these, taking dominance from Bitcoin just by existing, even though they are in reality dead.

This tells us there are basically too many alts in the market now for Bitcoin’s dominance to rise much further. I’m not saying all of these low volume coins deserve to die, though. Altcoins with good fundamentals are attractive targets for risk-hungry traders and investors scouring the smaller exchanges for the next potential 10, 100, or even 1000x project. These difficult-to-find coins, often referred to as “gems”, are definitely high-risk, high-reward plays for traders who know what to look for.

Some alts disappearing will, however, be good for the market as a whole, and I believe most of the projects listed only on smaller exchanges will. The majority on the likes of Binance, OKEx, and Huobi, will probably survive due to the retail demand there. When BTC inevitably makes its move and ends this bear market, new buyers will enter the market.

Despite new altcoins popping up every week, Bitcoin’s dominance is still increasing. While this does show its strength, a look at history tells us it could also be a sign that a new bull run is in the making. Currently we’re seeing seemingly random alt breakouts, with coins rising 10-20 percent in price over a few hours, only to drop back just as fast to the level they were before. Sudden price jumps and retraces like this aren’t usually organic but rather whales coming out to play, but they could also be a sign of impatience among investors afraid to miss out out on the next alt season.

There are some major events on the horizon for crypto, and the outcomes of these will largely decide which direction the market is going to take. Bitcoin exchange-traded fund proposals, Bakkt launching, major banks introducing crypto trading, and other risk-averse products that will make cryptos more liquid and trusted, are coming into the market. As we reach each of these milestones we’ll see some very bullish headlines, which alone could be enough to trigger the next bull run.

Look for Bitcoin dominance to rise first, then drop again as altcoins start going off one after the other. Still, regardless of upcoming news, we’ll continue to see huge corrections and gains, and until the infrastructure and ecosystem is ready for altcoins to decouple from Bitcoin, the king continues to lead the rallies.


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Author: Trond Vidar Bjorøy
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Why Bitcoin Dominance Is A Big Deal

Bitcoin (BTC) dominance is the percentage of cryptocurrency’s total market capitalization accounted for by Bitcoin, and it has reached a near-three month high.

According to CoinMarketCap, BTC dominance is now 42.6% of the market, its highest since April 15th. Its increase has occurred at the same time as the market’s total value experienced a downtrend.

Since the 9th of June, cryptocurrency’s total market cap has fallen by around 25% from around $340bn to its present valuation of $256bn: a near $100bn loss. BTC dominance has risen by 3% in the past two weeks and by around 4% since the beginning of the month.

Although bitcoin has experienced a price decline, falling, over the same time period, from $7,603 to $6,600, it is below that of the market in general, suggesting investors are buying more BTC than other cryptocurrencies.



What does Bitcoin Dominance Mean?

Bitcoin dominance is used to measure how much BTC is worth, as a percentage of all cryptocurrency values. During prolonged market shifts, it can also highlight whether demand for Bitcoin is staying above that of the market average.

When the market’s value has begun to increase; BTC dominance has declined. Between February and June of last year, for example, Bitcoin’s market share halved from over 85% to 37%.

Although Bitcoin’s value nearly trebled during this same timeframe, other cryptocurrencies also received investor attention: Ethereum’s value went from representing 17% of the entire crypto market to 31%.

 

 

Bitcoin is the ‘gateway coin’ for a lot of investors; they buy BTC before purchasing other coins. This can be in part because of its near-universal listing on every active crypto exchange, but also because of its high-profile and low volatility (which is something of a relative statement).

Most people have heard of Bitcoin. Data collected by Google Trends highlights that although Internet searches on the platform have fallen since January, ‘bitcoin’ has been searched almost five times more frequently than ‘cryptocurrency’, even in the past 90 days.

When crypto enters a bearish trend, BTC dominance often increases.  Its relatively low volatility means investors can maintain (some) value with their funds. During market declines, this makes it a convenient asset for investors looking to keep their money in cryptocurrency but wanting to minimize risk.

And for those who have the stomach, there’s always Tether.



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Author: Paddy Baker
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