Bitcoin Dominance Drops Below 40%. Does the Future Belong to Altcoins?

Altcoins Performing Better than Bitcoin

Market ‘dominance’ means the extent to which a cryptocurrency’s market cap accounts for the cap of the entire cryptocurrency market. So at around (or just under) 40%, bitcoin’s cap comprises 40% of the cap of all cryptocurrencies currently in existence.

It didn’t used to be this low. There has been a gradual decline since the beginning of January, when bitcoin’s dominance went from 71.86% to nearly 60% in the space of about a month.

Source: CoinMarketCap

As the chart above shows, the decline was fairly smooth for much of the year. It hit a low point on May 18 of 39.2%, in the wake of Tesla’s announcement that it would no longer accept bitcoin payments. It then recovered a little before sliding again, with the recent news about the FBI’s exploits pushing it down to 41%, according to CoinMarketCap (CoinGecko puts it at 39.6%).

For the most part, this fall in dominance has resulted from the bull market we’ve witnessed for most of 2021. Given that bitcoin has risen so high and become an overcrowded market, the speculative mania has led plenty of new and excess money to be directed towards altcoins, in the hope of enjoying the kind of big short-term gains that now seem out of reach with BTC.

The extra money has gone towards most major altcoins across the board, yet it’s Ethereum above all which has benefited the most from investors looking for the ‘next Bitcoin.’ As CoinMarketCap’s data indicates, Ethereum’s share of the cryptocurrency market has risen from 10.79% at the beginning of 2021 to 19.63% today.

Unsurprisingly (given the change in dominance), ETH has risen in price more strongly over the past year compared to BTC. It has appreciated by 930% (as of writing), while BTC has surged by a relatively more modest 240%. This is largely why ETH’s price as a percentage of BTC’s has hit new highs recently.

Source: Twitter/skew

Much the same goes for many of the leading altcoins, with Binance coin (BNB) ballooning by 1,900%, and cardano (ADA) rising by just over 1,600%.

Conversely, many altcoins have fallen less from recent all-time highs than bitcoin, which is currently down by 49% compared to its ATH of $64,804. By contrast, ETH is down by 42% from its ATH of $4,356, while Cardano is down by 37.8% from its ATH of $2.45.

In other words, numerous altcoins not only seem to offer a better opportunity for bigger gains right now, but they also seem to be holding their value a little better than bitcoin.

At the same time, it’s altcoins that are offering the most significant developments and innovations, with Bitcoin itself remaining pretty much as it was 12 years ago. For instance, Ethereum is in the process of moving to Ethereum 2.0, a proof-of-stake blockchain that should dramatically improve its scalability. Likewise, platforms such as Cardano, Binance Smart Chain, Internet Computer, Polkadot, Chainlink and Solana are all seeing exciting upgrades or adoption, further enhancing their respective value propositions.

When you add the fact that Bitcoin’s reputation has been tarnished a little by its seemingly negative impact on the environment, it seems hard to shake the suspicion that the future really does belong to altcoins.

Bitcoin is the Foundation of the Market

However, despite the decline in market dominance and its underperformance (compared to certain other cryptocurrencies over the past few months), bitcoin is likely to remain the biggest cryptocurrency for quite some time.

Most notably, the wider cryptocurrency market still seems to depend almost entirely on bitcoin for its own performance. When bitcoin sank by as much as 10% as a result of the FBI’s disclosure that it had obtained the private key of a BTC wallet used by cybercriminals, the whole market dropped by a similar (or larger) percentage. Similarly, the alt season we’ve witnessed during the past few months wouldn’t have happened without BTC rising so strongly in late 2020 and early 2021.

Indeed, even ethereum remains highly correlated with bitcoin, with its correlation rising beyond 90% during the current turbulent period.

Source: Twitter skew

Clearly, nearly 1:1 correlation isn’t the sign that ethereum and other altcoins are set to leave bitcoin behind. In fact, past history shows that BTC’s dominance tends to wane during bull markets, only to rise up yet again during bear markets when most people would prefer a relatively safe haven.

Source: CoinMarketCap

As the above chart shows, BTC’s dominance fell as low as 32.81% on January 15, 2018, as it slipped from its December 2017 high of $19,783, while the likes of ETH and XRP hit their own highs in January 2018. It then gradually recovered as wider interest in crypto waned, something which may happen again.

Of course, each time it comes back, its dominance never rises as high as it used to be (it was 87% at the start of 2017), so we shouldn’t probably expect it to hit 70% again.

However, glassnode data indicates bitcoin hoarding behavior that may cause another supply squeeze and bull run somewhere down the line, while bitcoin remains the only cryptocurrency that has enjoyed significant institutional interest. So it would be very unwise to assume it won’t remain the dominant crypto for a while yet.