Many crypto traders keep a close watch on one measure in the realm of cryptocurrencies: Bitcoin dominance. What importance does Bitcoin’s dominance have? Is there anything it can teach us about cryptocurrency performance? What about those who claim that this indicator does not accurately reflect the cryptocurrency market? We’ll go through how BTC dominance works in this article.
A Brief Definition of Bitcoin Dominance
The calculation of BTC dominance is simple.
Assume that the entire market capitalization of all cryptocurrencies is presently $100 billion. Blockchain’s dominance would be 60% if its market cap equaled $60 billion of this. See? It doesn’t get much easier than this.
BTC Dominance Over the Years
As you’d expect, Bitcoin had few challengers in 2013. Back then, it had a market dominance of 94%. ERC-20 tokens didn’t exist back then, Ethereum was just a figment of Vitalik Buterin’s imagination and stablecoins such as Tether (USDT) weren’t a thing either.
All of this started to change in 2017, when the first altcoin season began. In February of that year, BTC dominance stood at 85.4% (ETH had a 5.7% share of the cryptocurrency market cap, while Ripple’s XRP was 1.1%.)
But in the course of four short months, Bitcoin’s market share plunged dramatically as a spate of initial coin offerings (ICOs) boosted the industry’s market capitalization substantially. By June, BTC dominance had fallen to just 40% — with liquidity moving to ERC-20 tokens instead. CoinMarketCap data shows that, over the same period, total market capitalization in USD soared from $20 billion to $114 billion — a 470% increase.
During this period, Ethereum enthusiasts began to speak about the so-called “Flippening,” when Ethereum’s market cap would “flip” higher than Bitcoin’s — which never ended up happening.
Bitcoin prices crashed after the first bull run in 2017, and by January 2018, Bitcoin’s dominance was resting at an all-time low of 32.8% as a bear market commenced. Unfortunately, the alt season was officially over too, with many first-time investors losing substantial amounts of money as ICO projects crashed and burned.
Ernst & Young tracked data from ICOs that launched in 2017, and assessed them a year later. It found:
- 86% of ICOs had fallen below their listing price;
- 30% of these altcoins had lost substantially all their value;
- Just 29% of ICOs actually had a prototype or a working product.
These grim numbers have prompted regulators in nations such as the United States to take a bad view of ICOs, filing litigation against many blockchain startups that have completed a token sale. Investors can expect volatility in digital assets, according to government authorities, who issued investing advice that was almost the same as telling consumers to stick to the stock market.
After the bullish bubble burst, Bitcoin dominance returned to some extent — hitting highs of 70% in September 2019. However, it’s unlikely that we’ll see BTC punch through this level ever again.
Crypto assets are currently more plentiful and diversified than they were in the early 2010s. Various Bitcoin hard forks have occurred, notably Bitcoin Cash (BCH). New crypto market trends like DeFi have transferred liquidity to Ethereum, and now that the ICO frenzy has cooled down, we’re starting to see certain digital assets with compelling business cases gain traction.
The Downsides of Bitcoin Dominance
We end with a disclaimer: some analysts recommend taking Bitcoin dominance with a pinch of salt.
Some contend that this statistic ignores the BTC that has been lost forever, whether as a result of hacks or users forgetting their private keys. Others argue that it ignores Bitcoin’s high liquidity. An altcoin may have a $2 billion valuation, eroding BTC’s dominance, but this could be exaggerated artificially.
Nonetheless, BTC’s dominance might offer you a nudge in the right direction when it comes to how much of your money you should put into Altcoins. It’s just as vital not to put all your eggs in one basket and to use a variety of methods of analysis.