Bitcoin dominance (Bitcoin’s market cap as a percentage of crypto market cap) hit 52% this month – the highest in over 2 years. Essentially, the first time since Bitcoin hit a local peak of $64,000 in April 2021. Today, Bitcoin is trading near $30,000, less than half that value. What does this mean in the context of this market cycle? We deep-dive.
Bitcoin dominance over the years
Bitcoin dominance has been over 95% for most of its lifetime. The emergence of Ethereum and other potent altcoins with market use cases and adoption signalled a shift in this metric – it fell below 90% for the first time in 2017. The emergence of stablecoins in 2018, with Tether, USDC offering users an alternative on-ramp capability, reduced Bitcoin’s dominance further.
(Source: TradingView)
The dominance metric is currently moving in cycles. Many analysts estimate that, eventually, the Bitcoin dominance metric will consolidate around 20-30%. It is pertinent to note that Ethereum dominance is currently near 20%. In this context, a dominance of 50% is significant.
Understanding the dominance cycles
A significant portion of the crypto market has generally followed the direction that Bitcoin takes. Since Bitcoin dominates the majority of the overall crypto market cap, it has historically been highly correlated with the price of the altcoins.
(Source: Coingecko)
As Bitcoin dominance increases, altcoins have to lose value against BTC in the short term. Currently, this dominance increase is happening while BTC is rising in value. We believe this will move to the next stage soon where BTC loses value while altcoins lose value even further.
This should continue until BTC puts in a new local high post in which Bitcoin dominance should lose value (similar to Jan. 2021) – in this phase, the market becomes risk-on and altcoins gain value quicker than Bitcoin.
Currently, altcoins are bleeding against ETH which is bleeding against BTC
A snapshot of the June performance is sufficient for us to understand the current market reality
- Cardano lost 24% against Ethereum
- BNB lost 22% against Ethereum
- Solana lost 12% against Ethereum
- Ethereum lost 11% against Bitcoin
Essentially, this is a risk-off market and there is a re-routing of capital from altcoins into Ethereum into Bitcoin (a safer haven). This trend will continue until new retail investors bring additional money into the ecosystem – likely near the Bitcoin halving and its narrative which is nine months away.
Key takeaway
In the immediate term, Bitcoin dominance may consolidate around 52-53% where it can encounter resistance. The eventual target for dominance this year is around 56-60% before the market finds a low and becomes healthy. By this time, most altcoins will further lose 20-40% in value against BTC from current levels – this calls for prudence among investors to stick to Bitcoin and Ethereum for most of their crypto portfolio. Once Bitcoin dominance hits its cycle high, altcoins become favourable from a risk-reward perspective.
