Bitcoin’s (BTC) market dominance has historically been considered as a key indicator of its market energy. Currently, the metric is at a multiyear high above 51%.
However, a more in-depth evaluation means that the idea of “Bitcoin dominance” may not be as informative because it appears, particularly when contemplating the broader dynamics of the cryptocurrency market.
Dominance: A misleading BTC indicator?
“Bitcoin dominance” refers to BTC’s share of the overall market capitalization of all cryptocurrencies. While on the floor, it appears to mirror Bitcoin’s market energy, this metric largely represents the buying and selling exercise between Bitcoin and Ether (ETH), the second-biggest cryptocurrency and the most important altcoin by market cap.
This dynamic can distort the perceived dominance of Bitcoin, particularly when main shifts happen inside the ETH/BTC trading pair.
Related: Ethereum losing streak vs. Bitcoin hits 15 months — Can ETH price reverse course?
That mentioned, ETH’s “dominance” or share of the crypto market has remained comparatively steady for the previous few years at round 17% — whereas the seemingly inverse relationship between BTC dominance and ETH/BTC is clearly seen within the chart under.
The function of stablecoins and “sidelined” capital
Adding complexity to the interpretation of Bitcoin’s dominance is the function of stablecoins like Tether (USDT), the second-biggest “altcoin” by market dominance at round 6.3% as of Nov. 22.
USDT’s market cap development is commonly not a direct results of cryptocurrency market exercise however fairly an inflow of what might be termed “sidelined” capital — funds which can be primarily in {dollars} and infrequently ready to enter the market in the end.
Therefore, the rising market cap of stablecoins like USDT doesn’t essentially mirror an funding in cryptocurrencies however fairly the preparedness of traders to interact or hedge their crypto publicity.
Meanwhile, the share of every thing else that’s not BTC, ETH or USDT is just at round 25%, falling from multiyear highs of 35% in 2022.
Bitcoin “strength” or Ethereum market dynamics?
Throughout 2023, the narrative of Bitcoin’s dominance has fluctuated. While it appeared to regain dominance early in the year, this was extra reflective of the ETH/BTC buying and selling dynamics fairly than an mixture market motion.
Similarly, moments when Bitcoin’s dominance appeared to wane — as seen with the Shapella upgrade impacting ETH costs — have been extra indicative of Ethereum’s market actions fairly than a lower in Bitcoin’s total market “strength.”
Ultimately, the dominance chart is probably not the definitive metric for understanding Bitcoin’s place available in the market. Swayed closely by the ETH/BTC buying and selling pair, and artificial {dollars}, it presents a slender view of the market.
It’s necessary to think about a extra nuanced method to market metrics that encompasses the multifaceted nature of cryptocurrency investments and actions.
This article doesn’t include funding recommendation or suggestions. Every funding and buying and selling transfer entails threat, and readers ought to conduct their very own analysis when making a choice.
