Rethinking Bitcoin ‘dominance’ at 51% — A deceptive metric?

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Bitcoin’s (BTC) market dominance has historically been considered as a key indicator of its market power. Presently, the metric is at a multi-year high above 51%

Bitcoin dominance. Supply:

Nevertheless, a more in-depth evaluation means that the idea of “Bitcoin dominance” won’t be as informative because it appears, particularly when contemplating the broader dynamics of the cryptocurrency market.

Dominance: A deceptive BTC indicator?

The time period “Bitcoin dominance” refers to BTC’s share of the entire market capitalization of all cryptocurrencies. Whereas on the floor, it appears to mirror Bitcoin’s market power, this metric largely represents the buying and selling exercise between Bitcoin and Ether (ETH), the second-biggest cryptocurrency and the most important altcoin by market cap. 

This dynamic can distort the perceived dominance of Bitcoin, particularly when main shifts happen inside the ETH/BTC trading pair.

Associated: Ethereum losing streak vs. Bitcoin hits 15 months — Can ETH price reverse course?

That mentioned, ETH’s “dominance” or share of the crypto market has remained comparatively steady for the previous few years round 17% — whereas the seemingly inverse relationship between BTC.D and ETH/BTC is clearly seen within the chart beneath. 

Bitcoin dominance (blue) vs. ETH/BTC (orange). Supply: TradingView

The function of stablecoins and “sidelined” capital

Including complexity to the interpretation of Bitcoin’s dominance is the function of stablecoins like Tether (USDT), the second-biggest “altcoin” by market dominance at round 6.3% at this time.

USDT’s market cap progress is commonly not a direct results of cryptocurrency market exercise however slightly an inflow of what may be termed “sidelined” capital—funds which are basically in {dollars} and infrequently ready to enter the market ultimately.

Due to this fact, the rising market cap of stablecoins like USDT would not essentially mirror an funding in cryptocurrencies, however slightly the preparedness of traders to have interaction or hedge their crypto publicity.

In the meantime, the share of all the pieces else that is not Bitcoin, ETH or USDT is just at round 25% and falling from multi-year highs of 35% in 2022. 

Bitcoin “power” or Ethereum market dynamics? 

All through 2023, the narrative of Bitcoin’s dominance has fluctuated. Whereas it appeared to regain dominance early in the year​, this was more reflective of the ETH/BTC trading dynamics rather than an aggregate market movement.

Similarly, moments when Bitcoin’s dominance appeared to wane, as seen with the Shapella upgrade impacting ETH costs​​, have been extra indicative of Ethereum’s market actions slightly than a lower in Bitcoin’s general market “power.”

Finally, the dominance chart is probably not the definitive metric for understanding Bitcoin’s place available in the market. Swayed closely by the ETH/BTC buying and selling pair, and artificial {dollars}, gives a slim view of the market.

It is essential to contemplate a extra nuanced method to market metrics that encompasses the multifaceted nature of cryptocurrency investments and actions.

This text doesn’t comprise funding recommendation or suggestions. Each funding and buying and selling transfer includes threat, and readers ought to conduct their very own analysis when making a call.