bitcoin dominance

Not too long ago, there was an incredible occurrence regarding Bitcoin. It came back into a bull market at full force, resulting in total Bitcoin dominance over the cryptocurrency market.

It underwent a separation from the rest of the crypto market. For the first time since December of 2017, the crypto’s dominance rate is now climbing up to 70%. At the start of 2019, bitcoin price was under $4,000. When June rolled around, it was eventually topping out at just under $14,000.

In early 2019, altcoins were in their prime, performing at a considerably strong rate right alongside a strong performing Bitcoin. Many were of the belief that altcoins would continue at this rate, coining the trend as “altseason.” Evidently, this was not meant to last. During the long bear market of 2018 to early 2019, altcoins overall struggled to rebound at all. But since the reappearance of Bitcoin dominance with 2019’s “April Fool’s day rally,” a majority of altcoins are still experiencing slippage. However, some altcoins are well supported by the community and specifically those with recent launches are seeing some action.

Along with this resurgence comes a debate surrounding altcoins and their market. It’s up in the air as to whether or not the market will experience a similar price gain during this bullish cycle. 

Within this dispute, there are several standpoints that one may end up leaning more towards. There are some that believe Bitcoin’s dominance will prevail. They claim that it will keep increasing, all while altcoins will only lose more ground. There are others who are comparatively more optimistic. They suspect that, according to prior cycles, altcoin comebacks will come following Bitcoin’s inevitable bullish fatigue.

The drop before the rise

A resurgence could not occur if there wasn’t a low point to recover from. Believing that Bitcoin was never subject to a low point would be fallacious. However, in this particular case, the low value did not hinder the impending dominance.

At approximately $217.91 billion, the market capitalization of Bitcoin is now hovering close to a 70% domination rate of the total cryptocurrency market. At its lowest point, in January of 2018, this illustrious cryptocurrency represented 36.68% of the entire market.

A capital transfer began the diminishing of Bitcoin’s dominance. Investors were moving their capital to the assets whose launches were during the ICO craze occurring in 2017. However, a large amount of those blockchain projects ended up experiencing failure. At the same time, their in-house assets were beginning to lose value.

Investors were doing one of two things. They were either starting to vacate the cryptocurrency market upon going through significant losses. Alternatively, they were hedging back to Bitcoin and other much more dependable assets, including Litecoin and Ethereum. The outcome of this was a 2018 resurgence of Bitcoin’s dominance. This was happening in spite of the fact that its value was dropping.

Investor attraction

The instinctive attraction many investors have for Bitcoin is arguably another factor in the cryptocurrency’s dominance. It is a familiar name, it is reliable, and it has a lifespan that exceeds other cryptocurrencies.

Those who are in support of Bitcoin are predominantly macroeconomic. There are an array of factors that are actively persuading investors to make speculations about Bitcoin, a non-sovereign asset. These factors include

  • The trade war between the US and China
  • The Fed rate cut
  • The overall control of capital in China
  • Economic sanctions on both Iran and Turkey
  • Hyperinflation in Zimbabwe and Venezuela

Conversely, mainstream financial firms are in the middle of constructing services that cater primarily to the Bitcoin trading clientele. Two notable examples are Fidelity Investments and TD Ameritrade. On these two platforms, they are initiating bitcoin trading solutions. Switzerland’s high-profile stockbroker, Swissquote, was recently in the middle of launching a similar service. Another to add to this list is Bakkt, which is a digital asset platform whose launch was thanks to the Intercontinental Exchange. They were recently testing the first physical bitcoin futures contracts in the entire world.

All in all, investors have a tendency to look towards Bitcoin far more often than other cryptocurrencies. There are several reasons why this is, but the most notable is that it has real-world capabilities. Moreover, people are bullish on account of its scarcity. This could effectively transform it into a rare asset that one would want to hold onto in the future.

Interest reflection, thanks to price

Bitcoin’s dominance of 70% also emerges on the heels of its recent strong bullish performance. The asset in the last week rose by over 30%.

The sudden climb came shortly after Donald Trump threatened to enforce 10% tariffs on roughly $300 billion worth of Chinese imports. As an act of retribution, the People’s Bank of China took steps to intentionally diminish the price of the Chinese Yuan. The reduction made it worth less than seven dollars a unit, which is the lowest it has been in eleven years.

If history shows us anything, it is that there is an exceptionally close converse relationship between the Yuan and Bitcoin. In May, Bitcoin was rising by as much as 58% while Yuan was dropping by roughly 2.5%. A majority of analysts have a theory that focuses on this. Capital controls in China are restricting investors there, so they are hedging into bitcoin as a refuge.

While this is going on, altcoins are continuing to lose value against Bitcoin. For example, in comparison to Bitcoin, Ethereum is down 2.23%. On top of that, the XRP/BTC instrument is becoming weaker, dropping over 5% in the span of a day.

The bubble

In the latter part of 2017, the cryptocurrency market was starting to garner attention from the financial sector. The rise of Bitcoin was close to eclipsing the $20,000 price mark. Meanwhile, altcoins were also posting record-making highs. During the following year, a majority of cryptocurrencies who were witnesses to these gains experienced annihilation. The reason for this was because the market was enduring an exceptionally long bear decline.

Several 2017 bull run analyses came to a conclusion as to what was fueling the sudden price gains. The general consensus was that it was likely the hype surrounding cryptos as a new and separate asset class. All at once, retail investors were subject to a strong case of ‘fear of missing out’ (FOMO). In response to this, they were rushing to put money into pretty much any crypto token project. This reckless decision was due to the hope that they would become early benefactors of the “next Bitcoin.”

This hype – the ICO boom creating it and FOMO driving it – was generating ample tailwinds for Bitcoin. With this, it would eventually achieve its ATH price in the middle of December in 2017. 

In addition to this, ICO tokens were beginning to create a lot of buzz concerning the altcoin market. Admittedly, the 2018 bear market forces did not exercise restraint during its wipeout of the 2017 price gains. However, the recovery in 2019 has not exactly been as extensive in the market.

A connection from Twitter

This is understandably a lot to take in. In order to make the situation a little clearer, take a look at the comparison below. Its formulation is thanks to Twitter user and cryptocurrency analyst, StopAndDecrypt.

  • In 2017, there was a hard fork that was responsible for Bitcoin Cash (BCH) creating a separate chain. Since then, BCH is on the decline by 11% while BTC is coincidentally going up; more than 270%, actually.
  • In 2018, there was a Bitcoin Cash hash war, resulting in Bitcoin SV (BSV). This crypto has since been on the decline as well. Ever since the splitting of the chain, the plummet has been over 40%.
  • BTC is close to triple its price since the hard fork of 2017. Ether (ETH), meanwhile, was making approximately 0% gains within that specific period.
  • To cap off this theme of ‘declining’, altcoins are down by more than 80% ever since the peak of “altseason.”

The BTC price baseline

There is another way to closely observe the increase of Bitcoin’s dominance over altcoins of all sorts. This particular method requires employing the BTC price as the baseline for altcoin price-performance measurement. Specifically, the performance within a specific time period. When you do that, you will find that the outcomes appear to be even more critical in regards to altcoins.

If you want a visual example, consider the ETH/BTC pair (from tradingview.com). This is down to its lowest ratio. When you remove USD, the altcoin performance suddenly becomes an illustration of a decline in value.

bitcoin domination

There was a tweet in July by a Twitter user and Blockstream developer going by the name of Grubles. In it they deliver an incriminating allegation on altcoin value proposition, stating the following in the tweet:

‘Altseason’ was just a flash in the pan caused by Bitcoin miners delaying a protocol upgrade and massively profiting from altcoin mining. We’re now returning to 2013 where alts are effectively unused bad jokes like BBQCoin or PPCoin.”

The value one can find in a maturing digital asset space

At the time of this writing, we are past the halfway point of the year. There has yet to be few if any updates from ICO projects that, back in 2017, raised millions of dollars. One can easily boil down the story behind many of these startups to the following points:

  • There was an astounding amount of hype surrounding the “cryptomania” of 2017. All of the excitement emitting from the craze was evidently very contagious. This hype was essentially promising a blockchain infrastructure that will solve one specific problem.
  • The very act of raising millions of dollars from a token sale. It is entirely possible that those token sales were actually illegal sales of unregulated securities.
  • The inevitable clobbering at the hands of the 2018 bear market. One that would result in their tokens becoming worthless.
  • The low-key exit of the scene. When all is said and done, the retreat is quiet and there is a belief that no one will notice.

John Meyer is a managing partner at Starship Capital. He had some words to say about the developing value proposition narrative in the budding altcoin environment:

Most altcoins provide little-to-no tangible value or real-world use. Expect these altcoins to evaporate in short order. However, there is tremendous user-driven momentum in cryptocurrencies that are providing real-world utility on blockchains with tangible value on key industries around the world.”

Opposing views on Bitcoin domination: sparking a debate

For John McAfee and other crypto bulls, the altcoin market is not obsolete, nor it it solely dependent on Bitcoin dominance. Furthermore, the current price slide is only indicative of an opportunity for knowledgeable investors to acquire rewards.

The bullish predictions of McAfee lean more towards privacy coins and those of the medical variety. In numerous 2019 tweets, this self-proclaimed aficionado in cybersecurity made forecasts pertaining to an upcoming resurgence in the price of altcoin variants. All of this he expects to occur before the end of the year.

The global blockchain incorporation in healthcare should reach $1.7 billion by the mid-2020s. This speculation draws from findings at the hands of Acumen Research and Consulting. Going off of geography, America is allegedly dominating with the largest share in the global blockchain in healthcare. Moreover, the U.S. is a mature market hosting the adoption of smart technology in regards to healthcare and manufacturing.

There was a clash between McAfee and veteran trader, Peter Brandt, in July. Their dispute was about the issue of altcoins reclaiming a foothold in the market. Brandt was forecasting imminent destruction for altcoins, saying that:

Cryptomaniacs expect alts to do so again – they may be very disappointed.”

 McAfee, however, did not agree. In a tweet, he states:

@PeterLBrandt says altcoins are done. His knowledge is Stone Age. Bitcoin will forever be a store of value, but each transaction allows both parties to see inside their wallets ever after. If banks did this you would scream. Privacy coins don’t have this flaw. Just one example.”

An evolution in the market

Someone who shares similar beliefs with McAfee is Fundstrat Global Advisor’s Tom Lee. He states on multiple occasions that it is only a matter of time before altseason makes another appearance. Specifically, as soon as BTC achieves a new all-time high.

A good number of these optimistic predictions for altcoins stem largely from historical precedents. With that in mind, there is a rapidly increasing consensus within the industry. One that centers on the idea that the market is going through an evolution and that is persisting since the bull run of 2017.

Igor Chugunov, the CEO of the platform, Credits, has an opinion on the matter. Credits is a blockchain startup whose focus is primarily on the development of decentralized apps (DApps). Chugunov makes the argument that altseason will eventually make a return:

The bubble didn’t burst, it is better to say that it is just starting to inflate. The formation of the fundamental components of the cryptocurrency ecosystem is underway, the ICO era and the time when cryptocurrency could be considered as a tool for quick earnings have passed. I can say with confidence that the altcoin season will begin together with the adoption of technology, it is the technology that will determine the future liquidity of the market of altcoins and the general vector of market development. The future season of altcoins won’t cover the whole list of altcoins, it will be related to the coins that present definite value for space.”

Fibonacci and a probable rebound

As is, Bitcoin dominance is in a bearish posture. In spite of this, the dominance of altcoin is currently sitting in a “golden” retracement area. The basis of this derives from the Fibonacci retracement indicator.

Investopedia writer, Justin Kuepper, explains Fibonacci retracement indicators as follows:

Fibonacci retracements use horizontal lines to indicate areas of support or resistance, making them useful for traders. They are calculated, by first locating the high and low of the chart. Then five lines are drawn: the first at 100% (the high on the chart), the second at 61.8%, the third at 50%, the fourth at 38.2%, and the last one at 0% (the low on the chart). After a significant price movement up or down, the new support and resistance levels are often at or near these lines.”

After the January 2018 correction, altcoins’ dominance over the market was able to reach the 61.8% and 65% Fibonacci retracement level. This Fibonacci retracement zone is indicative of a particularly critical point for the altcoins’ dominance trend. A noteworthy correction – one similar to what this area was subject to – implies the probability of a rebound.

Should there be validation, then the rebound could potentially boost the altcoins’ dominance. In terms of Fibonacci retracement levels, it could go up to the 50% or 38.2% level. Still, a break occurring below the golden retracement level signifies a trend reversal from bullish to bearish. It is likely that this could result in a considerable drop in the value of altcoins’ market.

An apocalypse on the horizon?

The comparisons between the cryptocurrency landscape and the dot-com time period of the 1990s and early 2000s are plentiful. Setting aside crypto’s paradigm-modifying potential, several analysts are also drawing another feasible similarity between the two eras. That similarity being the crash of the market.

Time after time, there is speculation surrounding the potential occurrence of a ‘crypto apocalypse’. This event would likely eliminate many altcoins from existence; over 2,000 to be exact. The outcome would be similar to the post-dot-com bubble era. During this period, there was an increase in globally recognizable internet giants around this time. Brandt sums up this argument in a tweet from late June of this year. In it, he says:

Many altcoins benefited from the last bull run in $BTC. Cryptomaniacs expect alts to do so again — they may be very disappointed. 2000 .com bubble is analog. Following 2001-02 tech collapse, dotcoms with real value exploded. The ‘alt’ .coms went bankrupt.”

Now, whether the day of reckoning is on the horizon for altcoins is a topic for debate. There is no definitive answer. However, there are various projects that are starting to show troubling signs.

Bitcoin domination leaving altcoins in the dust

In July, CNN reported on the seemingly grim future concerning altcoins’ diminishing dominance. XRP, XLM, EOS, and others will start to underperform Bitcoin in this bull run unless there is a miraculous breakthrough. In fact, there’s a chance that many altcoins will disappear altogether. There are three reasons as to why this might be the case:

  1. The narrative is switching to “bitcoin, not blockchain.” Basically, up and coming institutional investors will not purchase alts.
  2. There aren’t any 2017 alt season catalysts that exist at this point.
  3. Traders will utilize the developing bitcoin derivatives market as a means to discover substantial gains in lieu of alts.

Overall, it is difficult to tell if we will see another altseason that’s similar to the hype-cycle of 2017. It would be foolish to state that we will because there is no way of knowing for sure. Practically none of the same triggers from before exist in the digital asset ecosystem of today. Furthermore, the narrative appears to be applying restraints when it comes to Bitcoin dominance.

However, none of this necessarily means that all altcoins are dead. Those who possess stable utility and communities will in all likelihood regain strength in the next bull run. Regardless, it is unlikely that we will see a major altcoin resurgence until BTC surpasses the $20,000 mark. On top of that, when BTC attracts new money.

As trader and Twitter user, Cantering Clark, puts it:

Alts don’t crush it again until BTC draws people in with a new ATH.”

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