Bitcoin dominance points to altcoins upside
Bitcoin is the first and largest digital asset in the world. Currently, there are thousands of different cryptocurrencies, of which 2493 are listed and tracked on coinmarketcap.com. All coins have market capitalizations (market caps) i.e. the total value of the coins circulating on the open market. The equation is as follows:
– All outstanding coins x the current price per coin = Market cap
As of the 27th of August 2019, the total market cap of all cryptocurrencies (as listed on coinmarketcap.com) is $264 bln.
The site also shows what percentage of this number is attributed to the Bitcoin market cap, known as the Bitcoin dominance. Since the first block was mined on the Bitcoin blockchain all the way up until today, Bitcoin has had the largest market cap of all digital currencies. However, as Bitcoin itself became more popular, an increasing amount of other projects have launched their own cryptocurrencies known as altcoins. Generally speaking, the stronger the surge of the Bitcoin price is, the more closely it is correlated to the Bitcoin dominance chart.
As the years progressed, it has become clearer that Bitcoin dominance shows an inverse correlation to the market cap of altcoins as can be seen in the third chart here. The two strongest examples of how severe this inverse correlation can be at times are:
- The altcoin rally of the first half of 2017 where Bitcoin dominance dropped from over 85% to less than 39% within six months.
- The altcoin rally of December 2017 and January 2018 where Bitcoin dominance dropped from 60% to 33%.
The Bitcoin dominance has fluctuated quite a bit over the years as an increasing amount of altcoins flood the market with stronger use cases consistently. With that being said, both Bitcoin and Bitcoin dominance have been on a tear since the Bitcoin price touched the low of December 2018 when its dominance stood at 53%, already up from its low of 33% in January 2018. Since that December, the price of one Bitcoin has increased by over 300% at its peak. At the same time, altcoins have struggled to keep up, causing the Bitcoin dominance to rise to its highest point since April 2017 at 68.8%.
These movements are somewhat as expected. That being said, since the last time that Bitcoin dominance stood this high, a lot of new major and solid projects with real-world use cases have brought their cryptocurrencies on the market. The potential of altcoins seems higher than ever, yet this improved state of the altcoin market is not reflected in the dominance chart.
Bitcoin could still have some room to run and perhaps see its dominance increase a bit further to 70-80%. But considering the improved fundamentals of the altcoin market and the sudden surge of both the Bitcoin price as well as strong uptrend of its dominance, it is likely that altcoins will consolidate and follow suit in the near future.