A quick rundown
- Bitcoin's dominance has taken a bit of a dive as it loses steam against surging altcoins.
- This change reveals distinct drivers among digital assets, according to one market analyst.
- However, Bitcoin's dominance is more likely to stabilize rather than drop, the analyst predicted.
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Decreasing Supremacy of Bitcoin Not Indicating Imminent Rise of Altcoins, Analysts Warn
Bitcoin's market cap is declining relative to other popular cryptocurrencies as U.S. President Donald Trump's trade war rhetoric takes a step back. Yet, this doesn't necessarily mean an altcoin rampage is on the horizon, according to experts.
They argue that the current shift towards high-risk assets, which has fueled the rise of Ethereum and other altcoins, may not endure in the face of ongoing economic uncertainties. If market turbulence resurges, investors may gravitate towards the safer digital asset, Bitcoin.
"When markets are gripped by macroeconomic instability and U.S. dollar risks, Bitcoin's dominance is likely to rise," Zach Pandl, head of research for crypto asset manager Grayscale, told Scene. "On the other hand, when markets focus on blockchain technology innovations and crypto's wide-ranging potential, Bitcoin's dominance tends to fall."
As of the weekend, Bitcoin's market cap lingers above $2 trillion. Dominance indicators differ in the number of coins they track, but they consistently show BTC leading by a four-year margin compared to major altcoins or the entire field.
Data from TradingView shows that among the top 125 cryptocurrencies by market cap, Bitcoin accounts for about 63.5% of the combined market value. Earlier this month, Bitcoin dominance hit 64.89% on that chart, representing its highest level since January 2021. Comparatively, CoinGecko data shows Bitcoin dominance at 60.4% versus all tracked coins on the market.
In the past two weeks, Ethereum's price has soared 36% to around $2,485, eclipsing Bitcoin's growth and nibbling at Bitcoin's dominance, along with other altcoins that have also surged beyond Bitcoin during this period.
Ethereum suffered heavy losses during Trump's initial trade maneuvers, with its price plummeting 45% in the first quarter and dipping below $1,500 in April, according to crypto data provider CoinGecko.
Bitcoin has thrived because of its "non-sovereign" nature, akin to gold, while absorbing most of the capital flows into crypto through products like exchange-traded funds (ETFs), which were approved last year said Pandl.
In the past, Bitcoin's dominance has dropped following its price peaks, as traders redirect funds into riskier altcoins. However, spot Bitcoin ETFs could challenge this trend, as products that don't permit investors to explore alternative assets on-chain.
Within a range of nine to twelve months, Bitcoin dominance is more likely to hover around 60%-70% of the market, rather than sliding sharply, according to Pandl. This prediction is tentative given the conflicting dynamics at play - bullish sentiment towards both Bitcoin (for macro reasons) and altcoins (for technological and adoption-related reasons).
Bitwise's Juan Leon, senior investment strategist for a crypto asset management firm, stated the decreasing Bitcoin dominance reflects growing investor appetite for risk. The ninety-day tariff pause by Trump, combined with lower inflation, is easing broader concerns about a U.S. economic slump, while fanning hopes of Fed rate cuts [4].
Lower interest rates often boost riskier assets like stocks and crypto due to cheaper borrowing and increased liquidity. Pandl's perspective was echoed by Greg Magadini, director of derivatives for crypto data provider Amberdata, who said the market has experienced a massive rally in risk-on assets this week, which has benefited altcoins [2].
Magadini pointed out that gold's price has dropped as trade negotiations between the U.S. and China have progressed. Given Bitcoin's mix of risk-on and "digital gold" appeal, it has lost ground to altcoins, which are considered a pure play risk [2].
Revised by James Rubin.
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References
- sholler, S. (2021, March 18). Altcoin Season? Bitcoin's Dominance of Total Crypto Market Cap Hits Four-Year Low. CNBC.
- Schonfeld, B. (2021, July 2). Bitcoin Dominance Drops to Four-Year Low as Altcoins Surge. Bloomberg.
- Loveless, K. (2021, March 23). Altseason 2021: Your Proof That an Altcoin Season Is Starting. Cointelegraph.
- Chen, J. (2021, June 15). Federal Reserve Signals June 2021 Interest Rate Hike Amid Recovery. CNBC.
- Donnelly, C. (2021, May 21). Grayscale Explains Why 'Altseason 2021' Hasn't Happened Yet. Forbes.
- Bitcoin's dominance in the cryptocurrency market has decreased, as it faces surging altcoins like Ethereum.
- This shift in the digital asset market reveals distinct drivers, according to market analysts, but Bitcoin's dominance is expected to stabilize rather than drop significantly.
- The current rise of Ethereum and other altcoins might not endure in the face of ongoing economic uncertainties, as investors may revert to Bitcoin for safety.
- Bitcoin has thrived due to its "non-sovereign" nature, akin to gold, while absorbing most of the capital flows into crypto through products like ETFs.
- In the past, Bitcoin's dominance has dropped following its price peaks, as traders redirect funds into riskier altcoins. However, spot Bitcoin ETFs could challenge this trend.
- Data from TradingView shows that among the top 125 cryptocurrencies by market cap, Bitcoin accounts for about 63.5% of the combined market value.
- The decreasing Bitcoin dominance reflects growing investor appetite for risk, and the market has experienced a rally in risk-on assets like stocks and crypto due to lower interest rates.
