Bitcoin’s dominance — its share of the total cryptocurrency market cap — is one of the most important technical indicators that so-called “smart money” investors follow. Bitcoin dominance (BTC.D) is the ratio of Bitcoin’s market cap compared to the total market cap of all cryptocurrencies. An increased Bitcoin dominance indicates that investors have high faith in Bitcoin. Conversely, a low dominance means higher interest in other cryptocurrencies besides Bitcoin, or altcoins. Enter Token ATH!, our new podcast that’s going to help you sort through all of it.

Understanding Bitcoin Dominance

Bitcoin is the long-standing heavyweight champion of the crypto world. Until 2017, Bitcoin accounted for as much as 95% of the total crypto market cap, given the previous lack of serious competition from other cryptocurrencies. This is mostly attributable to its first-mover advantage, name recognition, and existing infrastructure. Bitcoin’s visibility and availability are second to none. It remains the most well-known cryptocurrency, widely available on almost every crypto exchange and through brokerage services via Spot Bitcoin ETFs.

Bitcoin's dominance is not static. It fluctuates based on various market dynamics. When things get economically uncertain, investors flock to safer, more established projects, which is why Bitcoin dominance tends to shoot up. In 2019, Ethereum suffered an 87% price crash, its most severe in history. As such, BTC dominance blasted back up to around 71%. Like now, in early 2018 a sudden crash of the cryptocurrency market resulted in the cascading sell-off of nearly all cryptocurrencies, and Bitcoin—in particular—crashed in price. In reality, most ICOs never even happened, most altcoins faded into irrelevance, and Bitcoin dominance shot up.

The increasing use of stablecoins has further challenged Bitcoin’s dominance. Stablecoins provide a comforting haven in stormy market times. At the same time, they make it less important for them to have to exchange that money back into Bitcoin. Yet in periods of extreme market duress, investors may still flock to Bitcoin as the safe haven of last resort, further fueling its dominance. Overall, Bitcoin dominance is a useful measure to gauge investor sentiment and risk appetite in the cryptocurrency market as a whole.

The Altcoin Season Debate

The inverse relationship that exists between Bitcoin dominance and altcoin performance may be more complex. BTC dominance is typically at a high right before the beginning of an altcoin bull run. With every bullish run of Bitcoin, investors follow suit. They are aggressively trying to beat that diversification and return elsewhere in altcoins. Bitcoin’s market dominance is usually under 54% during an altcoin season. From the 2017-2018 cycle, Bitcoin’s dominance dropped from 70% to 38%. At the same time, altcoins market value doubled, increasing their dominance from 30% to 62%.

Just like how the NFT boom and memecoins were responsible for a lot of that 2017–2021 altcoin tide. Looking at previous cycles, the first large wave of this cycle’s altcoin season was sparked by DeFi Summer back in 2020. The upcoming Bitcoin halving in April 2024 has interest in crypto once again piqued and played a role in the recent altcoin boom. During the 2020-2021 alt-season, large altcoins such as Ethereum, Solana and Ripple neared their respective all-time highs. At the same time, smaller altcoins were mooning, with some shooting up as much as 150,000%!

That a Bitcoin dominance is high doesn’t guarantee an altcoin season is dead. History would agree that this transition from bitcoin to altcoins is in full effect. In previous cycles of 2017 and 2021, altcoins usually had their own rally two to six months after BTC’s all time highs. Ether's recent outperformance, posting an 81% rally since its April lows, is a sign that sentiment is starting to spill over from bitcoin to the altcoin market. AAFI of 98 on April 16th 2021, defining the beginning of an altcoin season. The index compiles fundamental data for the 50 largest altcoins by market cap. It compares their price movements to decide if an altcoin season has begun.

Institutional Investment and Market Dynamics

There’s no getting around it — institutional investment is the reason that we are here today. And institutions are still making the moves outlined in their original plans to invest in cryptocurrencies. The majority of them, as far as the money already deployed, are investing 1-5% of their entire portfolios into digital assets or other products. This rising aureate can be bullish for the amount of Bitcoin and for altcoins.

Not only are institutions itching to tokenize their assets. This model provides them more significant access to new investors and capital, increased liquidity and operational efficiencies. This new interest in tokenization would be the cherry on the cake to make the altcoin market explode.

  • Diversification: Exchange-traded products (ETPs) tied to a broader basket of digital assets are enabling diversification, allowing investors to balance risk across tokens.
  • Growing sophistication: The increased use of derivatives in trading strategies indicates a growing sophistication among hedge funds in managing crypto investments.
  • Confidence in regulatory environment: Initiatives like the SEC’s approval of select Bitcoin ETFs have bolstered confidence in the regulatory environment, encouraging institutional investment.

Considering Bitcoin dominance and its impact on altcoin performance is key to making smart investments in 2023. Position your portfolio to profit from changes in Bitcoin dominance to maximize your profit potential and long-term market adaptability. Here's a quick guide:

Navigating the Market

With knowledge and flexibility in your portfolio, you can thrive even in the ever-changing cryptocurrency ecosystem.

  1. Monitor Bitcoin Dominance: Keep an eye on BTC.D to gauge overall market sentiment.
  2. Analyze Altcoin Performance: Look for altcoins that are showing strength and potential for growth.
  3. Consider Market Trends: Stay informed about the latest developments in the crypto space, including regulatory changes and technological advancements.

By staying informed and adapting your investment strategy, you can navigate the dynamic cryptocurrency market successfully.