Like our last article on market capitalization, the understanding of BTC dominance is a fundamental part of truly grasping the dynamics at play at any given time in the Crypto market. It can help determine a variety of information such as altcoin performance or what stage we are at in the macro bull run which could be important when looking at longer term time frames. It is also valuable knowledge to have when discussing whether ‘the flippening’ could ever happen. However, this shall be discussed in more detail later on.
The Emergence of BTC Dominance
The phrase Bitcoin dominance quickly came into fruition during the rapid rise of altcoins such as Ethereum and XRP from 2010 onwards. Early bitcoin adopters who began to focus their eyes on other Alt coins quickly realised that Bitcoin was just the start of blockchain technology. As the hype of these early altcoins started to take shape, particular patterns in the crypto market began to take place. It was evident that the price of bitcoin day to day was having an impact on the price of these new emerging altcoins too. In order to start making performance-based predictions, it was clear a form of measurement was needed to analyse the performance of BTC compared to the other Alt coin tokens.
How the measurement of BTC dominance works
The BTC dominance index is out of 100, similar to a percentage. This ratio dictates how much of the overall Crypto market cap is made up of the market cap of BTC. From this we can then derive the share of the crypto market made up of all other Alt coins. For example: Right now, the current bitcoin dominance figure is roughly 43% percent. This means that 43% of the total Crypto market cap is made from the market cap for BTC. This also means we can assume that the remaining 57% of the crypto market cap is made up of all other Alt coins. As price action in the markets occur these percentage ratios fluctuate as market caps change with liquidity continuously circulating through the crypto market.
Brief BTC dominance history
Soon after the BTC dominance index became a staple tool in analysing the market, many market participants started to search for the token that potentially could overtake bitcoins domination in the crypto space. It became clear that the fastest emerging crypto asset which could take on this challenge was Ethereum. BTC, especially during the early years after its inception, held a market share of more than 90%. However, as Ethereum started its early years of rapid growth, with other Alt projects building on top of Ethereum, this market dominance quickly diminished as liquidity and capital began flowing into early DeFi projects.
This rapid fall in BTC dominance, taken over by other Alt coins in the crypto space, can be illustrated by the BTC dominance chart above. As we can see, between 2015 – 2017, BTC has a very high dominance of over 95% up till around March 2017 highlighted in yellow. The shaded area in red shows the dramatic fall in BTC dominance during the summer of 2017, and, falling even further around the beginning of 2018 to a low of 35% indicated in white. It was at this point between 2017 – 2018 ‘the flippening’ became a real possibility.
The ‘Flippening’, Has it ever happened?
It was soon apparent during the altcoin mania of 2017, that it would be Ethereum who could challenge BTC and eventually flip BTC in being the largest cryptocurrency by market cap. This was quickly dubbed the ‘flippening’ by crypto enthusiasts and in May 2017 this very nearly occurred. The chart below helps illustrate just how close Ethereum was to flipping bitcoins market cap.
As we can see from the chart BTC fell to a market capitalization of roughly 37% whilst Ethereum’s market cap had soared to a peak of 30%. Meaning there was only a difference of 7% between ETH and BTC’s market capitalizations. This is the closest any crypto currency has been to becoming larger in market cap than BTC. However, from 2018 till the end of 2020 BTC had slowly recovered a lot of its lost market cap rising to highs of around 70%. Whilst Ethereum’s has slowly declined.
Since the start of 2021, with developments such as ETH 2.0 on the horizon which would turn ETH into a deflationary asset, ETH’s market cap has started to rise again, and we are also seeing BTC’s dominance fall significantly back to the lows of 40%. This has quickly reignited the ‘flippening’ debate and many ETH fans believe the flippening could eventually occur during this macro bull-run.
Conclusion
Bitcoin dominance is an essential tool in indicating the flow of liquidity between BTC and other Altcoins. Using this tool, predictions can be made of impending alt cycles, and how well bitcoin is fairing as investment in comparison to other crypto assets. Using market capitalizations, we can also see how Ethereum has gone through points of extreme strength, challenging bitcoin in being the largest cryptocurrency. With fundamental news being bullish for both Bitcoin as it continues its institutional adoption, and Ethereum with its 2.0 upgrade helping to increase scalability, there’s no doubt that these two giants in the crypto space will clash heads again. Only time will tell if Ethereum can reach the market cap of bitcoin in the crypto space.
Written by Crypto Clues Giles
Crypto Clues 