What is Bitcoin dominance?

• Market capitalization is part of the formula to calculate the Bitcoin dominance and indicates how the investments are split in market overall

• Bitcoin dominance is the percentage of total investment in the entire crypto market that is invested in Bitcoin

• Over the years Bitcoin dominance has changed a lot, in the early years Bitcoin had around 90%, between 2017 and 2018 it suddenly dropped significantly while Ethereum caught up a lot, today it is around 50%

• Bitcoin dominance reflects how much trust there is in Bitcoin as a safe haven, but also how much trust there is in altcoins

• Bitcoin probably will (in the foreseeable future) pass the market cap of the most successful company, which currently is Apple, which underscores the success story of crypto in general due to Bitcoins scarcity

• Recurring bull and bear markets can be represented in a variety of seasons associated with a market cycle

• Bitcoin and altcoins have a strong (Pearson) correlation, always keeping Bitcoin dominance within limits

• Altcoin season can be recognized by the rise in Bitcoin price, the fall in Bitcoin dominance and the rise in altcoin shares of the total market

• In technical analysis, the Bitcoin price is often used to determine the beginning of a bull market and the end of a bear market by the presence of a golden or death cross in long-term charts

• The arrival of new coins hardly seems to affect Bitcoin dominance anymore because there is so much capital in Bitcoin

• Bitcoin has both strength and weakness, making it impossible to say whether Bitcoin dominance will always be at the current levels

What is market capitalization?

When traders go to buy cryptocurrency, they can choose which coins to buy. The market capitalization represents the amount of money, which traders invested into an asset. The more money - the higher the market cap.

Often it is a double-edged sword, because as more is invested in a particular coin the price also goes up, because the demand is higher. Once demand exceeds supply you will see that not only the price goes up, but also the market cap, which after all reflects number of coins x (higher) price.

In some cases, the market cap may also become much higher as the number of coins increases substantially, but in such cases you will also see that for a certain period of time the price may fall solidly, causing the cryptocurrency is not suddenly very high or only temporarily. This may be the case when the stock expands such as during a split, the release of tied-up coins from the team or others, or when many coins are added endlessly via staking or other methods.

What is Bitcoin dominance over the years?

When Bitcoin was just created it obviously had a market share and dominance of 100%, since it was the only crypto. Little by little, more cryptocurrencies were added, which is why Bitcoin's dominance could only decline over time. Even though certain crypto projects became quite popular, including Litecoin, XRP and Ethereum. From 2009 to 2017, Bitcoin kept a dominance of between 80 and 90%.

Bitcoin and Ethereum

Not many people know this, but there was a time in 2017 when Ethereums dominance was almost as high as Bitcoins. Ethereum almost provided a flipping! It rallied like a spear on Bitcoin and then was put in its place in the end. Since then, Bitcoin has always had a solid lead over Ethereum, though Ethereum has made a significant jump in recent years.

BTC dominance chart

The lowest Bitcoin dominance measured was in the crazy days of crypto in 2018. In January 2018, this dominance was just over 32%.

Bitcoin dominance. Source: CoinGecko.

In this Bitcoin dominance chart you can see the evolution of dominance since the inception of crypto. You can see that Bitcoin's share of the total market capitalization always has been very large, ranging between 40 and 60%. You can also see that the share of "Others," the newcomers, is steadily increasing. There are always new coins emerging that are gaining popularity which are good enough to break through.

The meaning of Bitcoin dominance

Bitcoin dominance indicates how much capital is put into a particular cryptocurrency relative to the capital in all other coins. If BTC dominance remains this high, it means that investors have the most confidence in Bitcoin. Remember that cryptocurrency is still very young and it will take a long time for altcoins to gain enough trust to command greater capitalization.

You often see that in bull markets much more money flows in altcoins, but that only the strongest coins are able to hold their high listings when the bear market kicks in. From this you can see that always the most popular and best blockchains rise to the top to stay there.

Total market capitalization and dominance

Bitcoin and Ethereum together have held about 70% of the total market cap lately and the top ten account for about 85%, with Bitcoin having more than 50% and Ethereum around 20%. Only an altcoin season can change this. This is why it is so difficult to penetrate the top 10. The differences in market capitalization are huge.

Another important consideration is that to get into the top 100 most popular cryptocurrencies you already have to have a market cap of around 1 billion euros. Which is more than many successful companies have. The total market cap keeps rising, mostly due to the upward momentum of the Bitcoin price. Crypto, at this point, isn't that small anymore. Bitcoin's total market cap, sits now at around 1,200 billion euros, whic is already 1/3rd of the market cap of the most successful company, Apple, being worth over 3,000 billion euros.

Cryptocurrency and other markets

One could draw two conclusions from these figures: The top ten are incredibly well developed, or the rest are underdeveloped. If we compare these figures with many other markets, it is safe to say that the crypto market still needs some time maturing. Although it may be true that Big Tech now accounts for about 25% of the total value of the Standards and Poor's 500, these are very different numbers. This 25% has also been reached after a long strong advance of these stocks combined with the AI craze going on.

It is only a matter of time before Bitcoin is worth more than the company with the highest market cap, and it probably won't stop there. Cryptocurrency and Bitcoin will over time have a market cap higher than most successful companies combined, if it continues like this. It will then really begin to look like a mature market, harboring enormous potential, detached from authorities. You could then call it everyone's currency. Since Crypto has only been around for about 15 years, it already is considered one of the most successful inventions of the last few decades, econonomically speaking.

Scarcity and Bitcoin exchange rate

As few Bitcoins are added, the scarcity of Bitcoin will increase, almost certainly causing the price to rise over time. If more and more people want to buy Bitcoin from fewer and fewer providers, the price can only go up, although it will be gradual. When you look at it this way, it is not surprising that Bitcoin dominance remains stable, even though many new cryptocurrencies are emerging. Most big investors do know the topcoins and especially Bitcoin and are not waiting for unknown crypto they know nothing about. It all starts with Bitcoin.

The seasons in a market cycle

How a season in crypto goes from bear to bull and altcoin season:

1. Since the beginning of the bear market, Bitcoin dominance has been gradually rising, as altcoins can lose as much as 90-95% of their value during this time and Bitcoin much less.

2. Bitcoin is bought more and the price begins to rise. At first this does little for altcoins, which move much sideways, while Bitcoin dominance rises.

3. Strong cryptocurrencies begin to move with Bitcoin and usually rise slightly more than Bitcoin.

4. Altcoins are also beginning to rise in price and there is beginning to be faith in the market that a bull market is imminent.

5. Bitcoin continues to record highs and both strong crypto currencies and the rest are rising along with it, with certain types of crypto currencies doing much better than the rest. This is the time when hypes arise, with certain cryptocurrencies being bought a lot and going over the top several times. Also meme coins are becoming popular again. The bull market has begun.

6. Bitcoin dominance drops and altcoin season begins. The lower dominance indicates a changing market sentiment. Bitcoin does continue to rise, but especially popular mid cap and low cap cryptos are exploding. Hype and meme coins are being sold-out like hot cakes and everyone is suddenly an expert. The bull market is on full steam. The best times in the crypto world if you belong to the bulls. The high is the magic limit and sentiment is turning around.

7. After this, the bear market begins again, ending the season. The bears claw their way down with their short selling.

Of course, there may come a time when this cycle is broken, but so far it has not.

Pair sale

Pair selling creates a correlation in prices that is very difficult to break out of. Breakouts from these patterns occur only in powerful bull and bear markets.

If Bitcoin rises a lot, then other coins rise along with it, because otherwise you could suddenly buy a lot more altcoins for Bitcoin. With a BTC/ETH pair, for example, you could suddenly buy a lot more Ethereum with Bitcoin, which is why altcoins always rise somewhat along with Bitcoin.

All popular cryptocurrencies have a trading pair with Bitcoin. Therefore, especially the top coins are firmly linked in their prices.

Pearson Correlation between Bitcoin and altcoins

The Pearson Correlation gives the association between Bitcoin and altcoins again. It ranges between 1 and -1, where the 1 represents full correlation (if Bitcoin goes up 1%, the other coin also goes up 1%) and -1 represents negative correlation (if Bitcoin goes up 1%, the other coin goes down 1%).

Between Bitcoin and the very strongest coins there is a high correlation of around 0.70. The midfield has a correlation of around 50% and a stablecoin has one of almost exactly 0.

The flight into stablecoins when a bear market is going on ensures that these coins can also record decent dominance figures against Bitcoin. After all, if all coins become worth less, it is not a bad idea to swap coins that become worth less for coins that remain virtually the same in price and have collateral in real world assets, even if they are Bitcoin.

Some coins have a very low correlation with Bitcoin for many reasons. There are reasons to have precisely these in your portfolio as well for as diverse a portfolio as possible, depending on the situation in the market cycle. In a bull market, for example, these coins can perform much better than Bitcoin.

Correlation keeps Bitcoin dominance mostly contained, making the old figures of around 90% dominance virtually impossible.

The value of Bitcoin dominance

With Bitcoin dominance, you can observe the current trend. The higher it is, the more traders have "fled" into Bitcoin. As it decreases, traders dare to take some more risks, because they sense (market sentiment) that altcoins may well yield more than Bitcoin and the altcoin season is coming.

Follow the money

When tracking Bitcoin dominance, you can reasonably track whether relatively more money is flowing into Bitcoin than into altcoins. If you see that dominance is rising then even more traders are flowing toward the safe haven. If it drops, then traders are taking more risk by investing in altcoins rather than Bitcoin.

Since most traders keep a close eye on Bitcoin's price changes as the most important indicator and trendsetter in the cryptocurrency world, the price and trade volume some about where the crypto market is right now. So you get a number of factors that together give important information about the kind of market we are in now.

Seasons in crypto in graph

Bitcoin dominance and the beginning of the altcoin season are shown in the table below:

Source: CoinGecko.

In the first line, you can see that both Bitcoin's price and dominance are increasing while altcoins are falling. We saw this during Bitcoin's rise after the bear market. Bitcoin rose from 20k to 50k. Altcoins moved sideways and largely in a downtrend during this time. This was Bitcoin's accumulation phase, when the more experienced traders started hitting Bitcoin.

In line two, you see the case of a bear market, in which Bitcoin's price falls and so do altcoins, but Bitcoin's dominance rises. Traders flee into stablecoins and Bitcoin and dump most other coins. Only super strong coins like Ethereum and BNB can keep up with Bitcoin in terms of dominance at this time.

In this table you can also see if altcoin season is coming. Rule number 4, if Bitcoin dominance drops, but Bitcoin's price rises and altcoin prices as well, it indicates the beginning of altcoin season, because then altcoins gain higher market share, given lower Bitcoin dominance. The beginning of an altcoin season can be indicated in case 75% of the top 50 altcoins outperform Bitcoin over the last 90 days.

Rule three and five are the least common. Surely, since Bitcoin is the market- and direction leader, but altcoins will at least follow Bitcoin's direction.

Sometimes there is also a temporary uptick in altcoins that lasts only days or weeks. In that case we would talke of an altcoin rally.

At websites such as CoinGecko or CoinMarketCap, you survey the entire crypto market and can see at a glance what the dominance figures of Bitcoin and Ethereum are, this is at the very top.

Technical analysis and Bitcoin dominance

Some traders use Bitcoin dominance to determine what part of the market cycle we are in and determine how they will deal with it, e.g. buy more Bitcoin, buy more altcoins or sell everything for stablecoins or fiat money.

Golden cross and death cross

In addition, they use a variety of technical tools, such as indicators and candlestick patterns. There are two moments from the technical analysis that have historically created fireworks, namely the golden cross and the death cross within the Bitcoin's chart.

This does require some explanation. A golden cross is a pattern from the indicator Moving Average (MA). It happens when the MA of the past 50 days moves up through the MA of that of the past 200 days. This is the strongest buy signal for Bitcoin in crypto history and can e taken as a signal of the beginning of a bull market.

The 50-day MA is a line that continues over time in a chart. It adds up the price of the past 50 days and divides it by the number of days. This, of course, also happens with the 200-day MA. When these two lines cross, this is taken as a buying signal.

A death cross does the opposite. The 50-day MA goes down through the 200-day and can be interpreted as a strong sell signal. It can usher in a bear market. Since many traders with deep pockets pay attention to this, it can also have a lot of effect.

In general, signals over longer periods count more heavily than those with a short timeframe. While there are more indicators and patterns that traders pay attention to, these are the most important signals.

Fundamental analysis crypto

Some investors are more into fundamental analysis and value a blockchain on what strengths it has over other cryptocurrencies. These investors try to oversee the entire market and try to use different factors in a possible return on investment with a long horizon.

The advent of new cryptocurrencies

Since Ethereum developed their ERC-20 token , a lot of coins with this token standard emerged. Today, many more token standards have been developed on all kinds of blockchains, causing the number of coins to explode. So why isn't Bitcoin dominance declining?

This is mainly due to the fact that Bitcoin's market cap is getting higher and higher. The more money that is put into Bitcoin, the harder it is to have a small percentage of that as a newcomer to the crypto world. So much money has to be put into new coins that many newcomers don't even come close to 1%, as 1% is around 12 billion euros at the time of writing anyway. That only makes it into the top 11 now.

The richest people and investment funds mainly put money into the absolute top coins. They are really not going to gamble on the latest trend or hype, which is why Bitcoin and the other toppers continue to post such high dominance figures.

Will Bitcoin dominance always be this high?

A number of scenarios can be imagined, both to Bitcoin's advantage and disadvantage.

Bitcoin strength

Bitcoin dominance will remain the highest if investors keep putting more and more into Bitcoin and the market cap keeps rising. This is likely to be true as Bitcoin is the best-known coin. The question, however, is whether or not a cryptocurrency will continue to catch up.

Bitcoin is known as a store of value, comparable to gold. It is a scarce coin, it is highly tradable and everyone wants it. Because of its scarcity and ever-increasing demand, the price can only rise as time goes on. This can keep up with or even surpass the growth of other cryptocurrencies in terms of dominance.

Bitcoin weakness

From the other side, a real disadvantage of Bitcoin is that it does not have a strong team like that of Ethereum, Cardano or Solana. The Bitcoin blockchain has no real leader and developments are more of a coincidence, like Ordinals or Runes, than the result of a roadmap that developers keep. This could put Bitcoin at a technical disadvantage and that could start to add up over the years and herald its declining dominance.

Another scenario is if suddenly some other crypto really breaks through and starts to rise toward Ethereum in terms of dominance, making Bitcoin relatively less dominant. If BNB, Solana, XRP and Cardano, for example, suddenly manage to capture much more market share, Bitcoin dominance could rapidly decline.

The fight for the crown

Worst-case scenario for Bitcoin dominance, however, is if Ethereum starts to rise relatively much more than Bitcoin and a flipping takes place. If Ethereum captures spot No. 1 in the crypto market and Bitcoin itself becomes an altcoin, Bitcoin's popularity could drop very quickly. If Ethereum becomes the market leader there is no doubt that Bitcoin could be surpassed by other popular blockchains with strong teams and developments. Whether that will ever happen is impossible to predict though.