In brief

Bitcoin dominance is a term used to refer to BTC's share of the entire cryptocurrency market capitalization. From its inception in 2009 until now, bitcoin remains the only digital asset in existence and therefore, naturally, it accounts for almost all of the cryptocurrency market capitalization. However, over time, things began to change. In 2013, the first wave of altcoins increased their value in the total capitalization of the cryptocurrency market. 2015 was associated with the birth of Ethereum and ether — Bitcoin's closest competitors — and then, in 2017, the ICO boom led to BTC dominance declining further and reaching its lowest point. all time, only recovering to above 50% within a few months. Today, BTC dominance faces stiffest competition from DeFi projects, NFTs, metaverse tokens, and over 20,000 non-bitcoin cryptocurrencies.

Introduce

Bitcoin is the world's first cryptocurrency, launched to the public in 2009 by one or a group of anonymous developers known as Satoshi Nakamoto. Since then, despite emerging competition, bitcoin remains the world's largest and most valuable cryptocurrency. Its underlying technology has also inspired the development of thousands of new cryptocurrencies collectively known as altcoins or altcoins.

Bitcoin's position relative to the rest of digital assets continues to be extremely important and indicative of the overall health of the cryptocurrency market. To measure bitcoin's market capitalization relative to the larger cryptocurrency market, traders and analysts use a ratio known as BTC dominance, also known as Bitcoin dominance.

What is BTC dominance?

BTC dominance is the share of bitcoin in the overall value of the cryptocurrency market. It is calculated by dividing the market capitalization of BTC by the total cryptocurrency market capitalization.

But why is it important? Historically, traders have used BTC dominance to conclude whether altcoins are trending up or down against bitcoin. For example, a popular theory is that the cryptocurrency market is entering a bull market if altcoins are trending up. For example, in 2017, a significant drop in BTC dominance signaled a spike in altcoin prices (rather than a drop in BTC prices), coinciding with the entire market entering a bullish phase.

From one to thousands of cryptocurrencies

In 2011, the first altcoin, litecoin, was born, and in 2013 — dubbed “the year of bitcoin” by Forbes magazine — the number of new altcoins entering the market began to increase rapidly. By May 2013, the cryptocurrency market had only about ten tokens, including Ripple's litecoin (LTC) and XRP.

At the same time, bitcoin prices skyrocketed as many investors discovered the digital asset sector for the first time. However, even with competitors, BTC dominance remained at around 95% during this period.

The birth of Ethereum

In 2015, Vitalik Buterin and a team of developers launched the Ethereum (ETH) network. Ethereum rivals Bitcoin as a blockchain that enables more use cases beyond financial services like remittances. Yet Bitcoin is unfazed by competition from Ethereum's native token, ether (ETH), and continues to account for around 90-95% of the cryptocurrency market. Things only started to change in 2017 — the start of the initial coin offering (ICO) boom.

ICO fever

Initial Coin Offerings (ICO), a popular crowdfunding method for early-stage cryptocurrency projects, became a prominent trend throughout 2017 and 2018. There were about 2000 ICOs were held during this period, with over 10 billion USD raised. Funds began to flow from bitcoin into many new altcoins that emerged at that time. Some investors believe in attractive, but unproven use cases, while some are more interested in profiting from significant price movements.

The unprecedented influx of money into altcoins has threatened bitcoin's dominance with the index's first major drop. It fell to an all-time low of around 37% in January 2018.

Crypto Winter 2018

Although the ICO craze generated significant attention for cryptocurrencies, the boom was short-lived. Investors realize that many ICO projects lack core fundamentals or have questionable business practices. Some projects have even become targets of regulatory scrutiny by the US and other authorities. This increase in negative sentiment eventually engulfed the entire industry, pushing the entire cryptocurrency market into a prolonged period of price decline and stagnation.

Bitcoin Recovery

With the decline in the value of many altcoins and the general disillusionment of investors in ICOs, BTC dominance gradually increased back to over 50% in the final months of 2018.

In 2019, bitcoin prices saw a slight resurgence, trading at around $7,000 by year-end, while BTC dominance peaked at around 70% in September. However, the digital asset will remain relatively peaceful until the COVID-19 pandemic hit the world in 2020.

Market during COVID

Starting in 2020 — after a brief COVID slump — the cryptocurrency market entered a record bull run. At the same time, BTC dominance reached 72% in January 2021, the highest figure since 2017, before falling to 39% in mid-2021.

With the pandemic breaking out, many people who feel bored and stuck at home have turned to daytime trading and investing to "kill time". Meanwhile, to offset the economic fallout of the pandemic, governments around the world have released more cash to stimulate struggling economies. Retail traders invest a significant portion of their money in stocks, forex or cryptocurrency markets for the first time.

And so after all the media attention on cryptocurrencies in the second half of 2020, altcoins have become an increasingly attractive, albeit risky, option for retail investors, especially especially newbies who want to make quick profits. For example, shiba inu (SHIB) prices have increased more than 40 million percent in 2021.

Furthermore, the rapid development of innovations such as decentralized finance (DeFI) and NFTs, which mainly exist on rival blockchains such as Ethereum and Solana (SOL), have contributed to bitcoin losing much of its market share. than. For example, Solana's price increased from $1.50 to an all-time high of $250 in 2021 after significant institutional and retail interest in the underlying technology. its.

Since then, BTC dominance has struggled to stay above 50%. The recent slowdown in BTC dominance may be related to ETH 2.0, Ethereum's long-awaited transition to a proof-of-stake mechanism, and the ongoing bear market.

summary

In recent years, the growth of the altcoin market has diluted bitcoin's market share. Unlike the early years, when there were few competitors, bitcoin is now competing with DeFi tokens, the increasingly popular NFT sector, and thousands of other cryptocurrencies.

Even so, bitcoin remains the leading cryptocurrency in terms of market capitalization, and BTC's dominance is unlikely to disappear any time soon. For starters, many investors view bitcoin as a store of value because of its finite supply—hence Bitcoin's nickname “digital gold.”

But most importantly, bitcoin's status also comes from being the first cryptocurrency in the industry, giving Bitcoin a competitive edge in the digital asset market. However, history has shown that if something better comes along, the first-mover advantage will not last long. It remains to be seen whether another cryptocurrency will dominate the market like bitcoin.