Bitcoin Dominance Percentage Declining As Altcoins Surge, How This Compares to the Past And The Reasons Why Conditions Are Particularly Favorable for a Continued Bull Market

February 11, 2020 / by Zachary Mashiach

Despite Bitcoin (BTC) rallying from roughly $7,000 to $10,000 since the beginning of the year, the Bitcoin (BTC) dominance percentage has been steadily declining, from 69% on January 7 to 63% currently. This article explores which altcoins are leading this trend, why this is happening, how the current market compares to similar market regimes in the past, and where the market could go from here based on current fundamentals and the state of the crypto space.

Which Cryptos Are Leading The Altcoin Surge

First off, it is important to understand how the Bitcoin (BTC) dominance percentage works. The Bitcoin (BTC) dominance percentage is the Bitcoin (BTC) market cap divided by the market cap of all cryptocurrencies combined. A 6% decline in the Bitcoin (BTC) dominance percentage essentially means that the altcoin market on average has gained 6% relative to Bitcoin (BTC).

It is simple to figure out which altcoins are responsible for this trend, since the top 18 cryptocurrencies, i.e. those with a market cap in excess of $1 billion, are responsible for over 90% of the total crypto market cap.

Since the beginning of the year, Ethereum (ETH) has surged from $128 to $222, corresponding to a roughly $10 billion increase in market cap. Indeed, the Ethereum (ETH) dominance percentage has increased from 7.4% at the beginning of the year to 8.7% currently.

Perhaps this gain in Ethereum (ETH) dominance is simply due to investor speculation, but perhaps it could be due to a surge in dApp and crypto token usage, including decentralized finance (DeFi) apps which offer crypto loans and crypto savings accounts. Likewise, EOS, another popular dApp platform, has seen its dominance percentage rise from 1.3% to 1.7%.

Bitcoin SV (BSV) has been one of the top altcoins this year, rising from $100 to $350 and adding nearly $5 billion to its market cap. The Bitcoin SV (BSV) dominance percentage has risen from 0.9% to 2.2%. That being said, the Bitcoin SV (BSV) rally is largely centered around speculation that Craig Wright is Satoshi Nakamoto and is going to eventually dump his Bitcoin (BTC) and buy Bitcoin SV (BSV). Therefore, there are no real fundamentals holding up the Bitcoin SV (BSV) market.

Also, Bitcoin Cash (BCH) has risen from $200 to $450, simultaneous with the Bitcoin Cash (BCH) dominance percentage increasing from 2% to 2.8%. The reasons for this rally are unclear, although it appears linked to the Bitcoin SV (BSV) rally.

Litecoin (LTC) dominance percentage has increased from 1.4% to 1.7%, the Binance Coin (BNB) dominance percentage has risen from 1.1% to 1.3%, the Tezos (XTZ) dominance percentage has increased from 0.5% to 0.6%, and the dominance percentage of other cryptocurrencies has risen from 10.7% to 11.5%. Notably, privacy coins like Monero (XMR) and Dash have seen strong gains.

Thus, Ethereum (ETH) and EOS account for 1/3rd of Bitcoin’s (BTC) declining dominance this year, Bitcoin SV (BSV) and Bitcoin Cash (BCH) account for another 1/3rd, and all other cryptocurrencies account for the final 1/3rd.

Why Are Altcoins Rising Faster Than Bitcoin?

It can be speculated that the altcoin market is coming back to life, based on these stats, and perhaps this is the ‘altseason’ that the crypto space has been waiting for. But why is this happening?

It could simply be due to the crypto space essentially being in a bull market this year, with Bitcoin (BTC) rising from $7,000 to $10,000. This is certainly enough of a price rise to garner mainstream attention, which would lead to an influx of new crypto users and investors. As new investors flock to Bitcoin (BTC), some of these investors end up buying altcoins to diversify their portfolio.

It is also possible that the rising Bitcoin (BTC) and Ethereum (ETH) value this year has swelled the treasuries of crypto projects, as well as of individual HODLERS, increasing the amount of money that can be dedicated to developing and marketing crypto and blockchain projects.

In other words, the bull market so far this year has injected lots of money into the crypto space, probably enhancing economic activity. Indeed, the increase in Ethereum (ETH) and EOS dominance supports this theory, since these are the most popular blockchains for dApps and crypto tokens.

Further, it is possible that under the right conditions this could lead to a positive feedback loop, where rising Bitcoin (BTC) and altcoin prices lead to increased economic activity, causing Bitcoin (BTC) and altcoin prices to rise further, and so on and so forth.

Past Market Regimes Which Are Comparable

Beyond the reasons why this is happening, it can be fruitful to look into the past to analyze similar periods where Bitcoin’s (BTC) dominance percentage was declining during a Bitcoin (BTC) rally since this could shed some light on where the market will go from here.

One relevant analog is April and early May 2018 where the Bitcoin (BTC) dominance percentage dropped 10% and Bitcoin (BTC) rallied from roughly $6,800 to $9,800. In fact, this is eerily similar to the current Bitcoin (BTC) market, which rallied from $6,800 to $10,000 while the Bitcoin (BTC) dominance percentage dropped 6%.

In May 2018 the Bitcoin (BTC) price quickly reversed downwards and the Bitcoin (BTC) dominance percentage began rising. Basically, it seems the rally in April 2018 was led by an altcoin surge, and when the rally ended altcoins got hammered even worse than Bitcoin (BTC).

Another comparable time period was February through June 2017, when Bitcoin (BTC) rallied from $1,000 to $2,500 and the Bitcoin (BTC) dominance percentage crashed 40% due to the initial coin offering (ICO) boom. After that the Bitcoin (BTC) dominance percentage began to rapidly rise as Bitcoin (BTC) rose to an all-time high of $20,000, followed by an extremely rapid loss of Bitcoin (BTC) dominance percentage when the bear market of 2018 started.

Why The Current Market Is More Bullish Than Similar Markets In The Past

As for the current market, it seems to be fundamentally different than the scenarios during April-May 2018 and February-June 2017.

During April-May 2018 the crypto space was still in the throes of a severe bear market, with many crypto companies and tokens going belly up in the midst of widespread bankruptcies and a regulatory crackdown. Basically, the fundamentals were quite negative, and the rally was soon extinguished.

However, the current crypto market has solid fundamentals, such as the Bitcoin (BTC) block halving in about 3 months, in addition to the potential for equities and bonds to weaken due to the Coronavirus outbreak, geopolitical tensions, and in general due to record equity and debt bubbles possibly becoming unstable

A simple way of looking at it is that although altcoins and Bitcoin (BTC) were surging in April-May 2018, that spark was stomped out by negative fundamentals, whereas the current crypto rally is occurring in the presence of strong fundamentals and therefore has a good shot at amplifying rather than reversing.

As for February-June 2017, it shows how a market where altcoins and Bitcoin (BTC) are both rallying, but altcoins are rising faster, can create favorable conditions for a major bull run. However, the market eventually crashed due to out of control Bitcoin (BTC) spot market speculation running head first into short selling pressure from the newly launched CME Bitcoin Futures exchange, and the simultaneous collapse of the out of control ICO sector.

In comparison, the current market is quite balanced since Bitcoin Futures provide constant short selling pressure, preventing out of control spot market speculation. Also, the ICO space is highly regulated now, so an ICO bust like the bear market of 2018 will likely never happen again.

Bringing all of this information together, a market regime like the current situation where Bitcoin (BTC) is rallying and altcoins are gaining value even faster can be considered favorable for the crypto space, since these conditions suggest that various types of altcoins, crypto projects, and dApps are gaining traction, and therefore crypto adoption and economic activity is increasing. This can create a positive feedback loop where crypto prices and economic activity increase hand in hand.

Thus, under the right conditions this sort of market environment can lead to a major Bitcoin (BTC) rally, like in the latter half of 2017, although the current market situation is even better since Bitcoin (BTC) speculation is balanced by futures short selling, most of the fraudulent and poorly managed crypto projects have been weeded out by regulators and free market dynamics, and fundamental forces like the block halving and economic weakness are increasing crypto investment globally.

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