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

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

Nonetheless, a better evaluation means that the idea of “Bitcoin dominance” may not 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 full market capitalization of all cryptocurrencies. Whereas on the floor, it appears to mirror Bitcoin’s market energy, this metric largely represents the buying and selling exercise between Bitcoin and Ether (ETH), the second-biggest cryptocurrency and the biggest 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 stated, 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. 

The position of stablecoins and “sidelined” capital

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

USDT’s market cap development is usually not a direct results of cryptocurrency market exercise however slightly an inflow of what might be termed “sidelined” capital—funds which can be primarily in {dollars} and infrequently ready to enter the market ultimately.

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

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

Bitcoin “energy” 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​​, were more indicative of Ethereum’s market movements rather than a decrease in Bitcoin’s overall market “strength.”