Bitcoin’s market dominance is rising - what does this mean?

比特币市场份额正在上升 - 这意味着什么？

Sự thống trị thị trường của Bitcoin đang tăng lên - điều này có nghĩa là gì?

<h2>Introduction</h2>
Bitcoin dominance is the proportion of Bitcoin's market capitalization to the total global market capitalization of cryptocurrencies. However, if you're new to the world of cryptocurrency, you might be wondering what this means and how it's applied. Before we get into what this metric means, let’s first quickly illustrate how it’s calculated. Bitcoin dominance is a percentage value that is calculated by dividing Bitcoin's current market capitalization by the global market capitalization of cryptocurrencies. For instance, at the time of writing, Bitcoin's market cap is US$548 billion, and the global crypto market cap is US$1.18 trillion. By dividing Bitcoin's market cap of $548 billion by the total crypto market cap of $1.18 trillion, we get 46% - which represents the portion of the cryptocurrency market cap that belongs to Bitcoin.
Because the amount of bitcoins in circulation will not significantly increase in a short time, Bitcoin’s price has a bigger influence on its market cap compared to its number of coins in circulation. After all, there are only about 1.7 million bitcoins left to be mined - which could take another <a href="https://www.blockchain-council.org/cryptocurrency/how-many-bitcoins-are-left/#:~:text=After%20all%20bitcoins%20are%20mined,block%20reward%20will%20be%20released.">100 years</a>.
 Keeping this in mind, let's examine how BTC dominance has evolved over time and what it has historically indicated with regard to market developments and sentiment.
<h2>BTC has always dominated - but the rate is decreasing</h2>
Historically, as the price of Bitcoin increased, there was a corresponding increase in its market dominance. But as new advancements were made in the digital assets space, the narrative of BTC changed from a hard payment currency to digital gold, and many more altcoins have come into play, the BTC dominance has been on a gradual decline.
When Satoshi made the first payment on the Bitcoin blockchain back in 2009, the original Orange Coin dominated the market. It was the market. Slowly over the next few years, other coins were launched including Litecoin (LTC), Dash, Dogecoin (DOGE) and Ripple (XRP). But things started to change dramatically when Ethereum joined the game. ETH was launched in 2015, but it really started to create a dent in BTC dominance at the height of the ICO frenzy of 2016-2018 as the Ethereum protocol made it easier for projects to launch their own coin on the ERC-20 standard, and raise millions in minutes using just a whitepaper. Case in point, Brave raised <a href="https://techcrunch.com/2017/06/01/brave-ico-35-million-30-seconds-brendan-eich/">$35 million</a> in 30 seconds.
 The altcoin sector took on more significance at this time, and that’s when many bagholders started anticipating ‘<a href="https://www.blockchaincenter.net/en/flippening/">the Flippening</a>’. A mythical point in time when Ethereum would overtake Bitcoin in terms of dominance. The closest we ever came to a flippening event was in <a href="https://coinmarketcap.com/charts/#dominance-percentage">June 2017</a>, as BTC dominance fell to 38% with ETH a close second at 31%.
As Crypto Winter arrived the years after, the crypto market eased and corrected, and Bitcoin’s price continued to recover in tandem with its dominance. Ahead of the 2020 Bitcoin halving, its dominance jumped and peaked at 70% in January 2021. This surge indicated to many analysts that Alt Season was back (more on this later) which eventually morphed into DeFi Summer.
 Many of the projects that were launched during the ICO stage years before were now finally gaining traction. There was an increase in enthusiasm for altcoins, and market participant speculation was high. After years of anticipation, the Institutional Wall of Money slowly dripped into digital assets, and much of that capital was funneled into Ethereum and its many Layer 1 and Layer 2 counterparts. Institutional money was investing into a tech narrative in a broad sense, and not the narrative associated with Bitcoin as ‘hedge against inflation’ or ‘digital gold’.
 Altogether, this shift caused Bitcoin dominance to plummet below 40%.
BTC dominance is also one of the key metrics that feeds into the crypto Fear and Greed Index. A sentiment indicator that measures whether certain assets are trading above or below fair value in relation to overall market sentiment. In other words, it indicates whether the market is driven by fear or greed. A sharp rise in dominance usually signals fear, as BTC is considered the safest place within the digital assets ecosystem.
 And more recently, the increase in BTC dominance was a result of fear spreading in the TradFi world - finally confirming Bitcoin’s utility as a digital gold which provides a safe haven when cracks begin to appear in the banking system.
<h2> BTC Dominance on the rise</h2>
At the same time, the banking system reckons with crisis of confidence
2023 has so far been a very good year for digital assets, and Bitcoin specifically. Reaching the psychological mark of $30,000 for the first since June 2022, BTC has gained over 80% making it the best performing digital asset within the top 10 of coins in terms of market cap.
There are many factors that have contributed to Bitcoin rising, including growing inflation worldwide, uncertainties around stablecoins, and regulatory troubles for certain types of altcoins. But most importantly, the banking crisis that started in the US and spread into Europe with the forced acquisition of Credit Suisse - Switzerland’s second biggest bank - highlighted the importance of the fundamentals on which Bitcoin is based.
In fact, Bitcoin was created during a time like this. For tamper-proof evidence, see Satoshi’s message within Bitcoin’s first block: ”The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.”
 In contrast to digital fiat held for you in a bank account, holding Bitcoin means you truly own your own assets. No intermediary gets to gamble with your Bitcoin. Nobody can bank run the Bitcoin blockchain. No centralized authority can influence the monetary policy of Bitcoin - there will only ever be 21 million Bitcoin in total. All assets and transactions are transparent and verifiable. This narrative is more than just providing a hedge against inflation, it offers protection against your funds being caught up in banks going under and governments bailing them out.
It’s events like the recent banking crisis that make more investors realize there is an alternative where owners of digital assets are indeed the only ones in control of those assets. As a result, BTC dominance has increased reaching 48% in April 2023.
 This time around, it wasn’t so much about ‘buying the dip’, but rather about buying into the core narrative of Bitcoin. This is different in a crucial way. The former is a long term trading strategy, the latter is a worldview.
It’s also in tandem with governments around the world, including <a href="https://www.gold.org/goldhub/gold-focus/2023/02/chinas-gold-market-january-gold-reserves-continued-rise#:~:text=Gold%20reserves%20rose%20further&amp;text=By%20the%20end%20of%20January%2C%20China%27s%20gold%20reserves%20reached%202%2C025,of%20China%27s%20total%20official%20reserves">China</a>, recently buying more gold with their US reserves rather than buying US financial products. When governments buy gold, the people buy Bitcoin.
Adding the momentum in BTC dominance rising, we are getting closer to the next Bitcoin halving which is anticipated to take place in April 2024. This has historically been a bullish signal for Bitcoin and crypto markets, with trading volumes increasing for at least a year after the halving event. That also means, it could be time for Altcoin Season.
<h2>It’s the season to be Alty</h2>
Since Bitcoin dominates the majority of the overall crypto market cap, it has historically been highly and positively correlated with the majority of altcoins, which then heavily react to its price movement. With this correlation, some suggest that Bitcoin dominance can also signal the onset of an altcoin season.
This is a bull market phase when a high number of altcoins quickly increase in price against the dollar and Bitcoin simultaneously. As their performance is better than Bitcoin’s, its dominance over the market tends to drop.
Technical analysis shows that BTC dominance rose to 48% from 42% during the first quarter in 2023, and has struggled to surpass that level so far hinting at the potential outperformance of altcoins. Similar short-term bearish turnarounds in the dominance rate in mid-October 2021 and June 2022 also pushed altcoin valuations higher. Bitcoin’s dominance appears to be peaking out at similar levels as in 2022.
But for Bitcoin to continue outperforming the rest of the ecosystem would imply that only Bitcoin matters, which appears to be unlikely considering the broader range of interest vested in the digital asset industry. A lot of financial and intellectual firepower is being deployed on the many different Layer 1 protocols, the Layer 2s that scale this thing globally, the dApps that serve institutional money within the DeFi sector, and the newer sector that looks at combining blockchain technologies with entertainment and arts. While flying the flag of a very different narrative, Bitcoin is not the only player in town.
 At the same time, Bitcoin dominance also just fluctuates over time, so Alt Seasons is not guaranteed at all. BTC dominance is just one of many indicators that can help to gauge market sentiment. These intermediate changes and fluctuations are of interest to traders because they can act as indicators regarding the current phase of the market, which may help traders to decide, when looking at a number of different metrics, how they wish to position accordingly.
Overall, as the use cases for digital assets continue to broaden their scope, and different types of money pursuing different types of interest come in, Bitcoin dominance will likely keep falling. It’s difficult to say how helpful Bitcoin dominance will be as an indicator for trading strategies. But it will always be a key marker in the overall story of the market. The overall pie may be growing, but the Original Orange Coin is still the biggest slice with all the juicy bits.

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