Original title: What Is Altcoin Dominance & How to Identify an Altseason
Original author: Vera Lim
Original source: https://www.coingecko.com/
Translated by: Daisy, Mars Finance
What is Altcoin Dominance?
Altcoin dominance refers to the combined market share of all cryptocurrencies other than Bitcoin and can be used to identify signals before the onset of altcoin season. When altcoin dominance rises, altcoins may bring significant gains to holders.
Key Takeaways
Altcoin dominance reflects funding competition between Bitcoin and other cryptocurrencies
When altcoin dominance rises, it means that funds are flowing from Bitcoin to altcoins in pursuit of higher returns. This is when the altcoin season begins.
The growth of stablecoins may cause false signals on the dominance chart because they are included in the total altcoin market capitalization. When the market panics, funds turn to stablecoins for safe havens, which may be misinterpreted as altcoin season due to the decline in Bitcoin dominance.
Understanding market dynamics is crucial for traders and investors trying to navigate the cryptocurrency space, helping them identify early signs of altcoin season. One of the most effective indicators is altcoin dominance - a concept that provides a visual representation of market sentiment and the ongoing tug-of-war between Bitcoin and other cryptocurrencies.
A brief history: reasons for changes in dominance
Bitcoin’s relationship with altcoins has undergone tremendous changes, with the shift in its dominance driven primarily by technological innovations, such as the creation of Ethereum and the introduction of smart contracts.
The Bitcoin Dominance Era (2009-2016)
The early cryptocurrency market was almost entirely dominated by Bitcoin. As one of the few digital assets available at the time, Bitcoin has long held 90%-95% of the market share. Although early altcoins such as Litecoin and Ripple existed, they were seen as niche experiments with little impact on the overall market structure.
The first big turning point: the ICO boom in 2017
In 2017, Ethereum triggered the first major paradigm shift. The emergence of the ERC-20 token standard gave rise to a revolutionary financing mechanism - the Initial Coin Offering (ICO). This attracted a large amount of funds to emerging projects, giving rise to many altcoins. As a result, Bitcoin's dominance suffered an unprecedented impact, plummeting from more than 85% in February 2017 to a historic low of about 38% in January 2018.
The Second Wave: DeFi Summer and NFT Mania (2020-2021)
After the 2018 bear market, Ethereum's innovation triggered another shift in dominance. New financial primitives such as "liquidity mining" ignited the "Summer of DeFi", attracting billions of dollars in funds chasing high returns. This cycle is more mature and narrative-driven, with funds rotating in areas such as decentralized finance (DeFi), non-fungible tokens (NFTs), and GameFi. The second wave of innovation caused Bitcoin's dominance to plummet from a peak of more than 70% in early 2021 to about 40% in May of the same year.
Current landscape (2024 to present)
As the collapse of FTX and Luna triggered a new round of bear market, the successful launch of US spot Bitcoin ETFs (such as BlackRock IBIT) promoted institutional adoption. Although this led to concentrated capital inflows into Bitcoin, the memecoin craze boosted by token launch platforms such as Pump.fun also promoted the growth of altcoins. Now that the growth rate of memecoins has slowed down, the capital concentration effect of Bitcoin is suppressing the expansion of altcoins, which may establish a higher "bottom support" for Bitcoin dominance.
How to Identify Altcoin Seasons: The Anatomy of a Market Cycle
"Altseason" is a unique stage in the market cycle when altcoins as a whole significantly outperform Bitcoin in terms of returns.
These periods are not random, but follow the law of fund rotation - they are triggered when investor sentiment shifts from risk aversion to risk seeking (usually accompanied by a shift of the Fear and Greed Index to "Greed").
Cryptocurrency market cycles typically go through four phases as investor risk appetite increases:
Phase 1: Bitcoin leads the way
A new bull run almost always begins with a surge in money into Bitcoin, which has seen its price rise so rapidly, outperforming the stagnant altcoin market, causing the Bitcoin dominance rate (BTC.D) to climb.
Phase 2: Ethereum and Solana follow up
When Bitcoin enters a consolidation phase after a sharp rise, investors' risk appetite increases and funds begin to shift to other popular assets. During this phase, BTC.D usually goes flat or slowly declines.
Phase 3: Large-cap altcoins explode
As Bitcoin and other major assets completed their gains, funds continued to flow along the risk curve to mature large-cap altcoins. At this time, the altcoin season really started, and BTC.D began to accelerate its decline.
Phase 4: Comprehensive copycat season and frenzy period
This is the period when speculation is at its peak, and the rally spreads to the entire altcoin market (including mid-cap, small-cap, and even micro-cap projects). This period is characterized by widespread skyrocketing prices, and BTC.D fell to a cyclical low.
Key signals of the coming of the copycat season
When the following signal combination appears, it often indicates that the cottage season is approaching:
Bitcoin dominance rate declines
The most direct signal is that BTC.D continues to fall below the key resistance level. Historically, the peak of the 60-70% range often appears before the surge of altcoins.
Bitcoin price consolidating
The alt season rarely occurs when Bitcoin is rising parabolically. Usually, it takes time for Bitcoin to rise strongly and then turn sideways before altcoins get "permission to rise."
Altcoin market capitalization climbs
It is crucial to have a clear uptrend on a chart specifically tracking the altcoin market. The most useful indicators on TradingView are:
TOTAL2 (total market value of cryptocurrencies excluding Bitcoin)
TOTAL3 (total market value of cryptocurrencies excluding Bitcoin and Ethereum)
Altcoin trading volumes surge
Significantly higher trading volumes for a variety of altcoins on exchanges are a key sign of rising investor interest.
Stablecoin variables and their impact on dominance
When analyzing dominance, it is important to consider stablecoins, which are assets that maintain their value by being pegged to an external asset such as the U.S. dollar.
Since stablecoins are included in the "total cryptocurrency market cap", their growth directly affects the dominance indicator. Every additional USDT or USDC issued will expand the total market cap, thereby continuously diluting Bitcoin's market share. Although stablecoins are not speculative assets, their market cap is still classified as "altcoins".
This can lead to major misjudgments: when risk aversion in the market heats up and investors exchange Bitcoin and speculative altcoins for stablecoins, the inflow of funds from stablecoins will support the total market value (biased towards altcoins), while the market value of Bitcoin will decline. At this time, the decline of BTC.D may be misinterpreted as a bullish signal for altcoins, but in fact it reflects that the market is seeking safe havens.
Tools for identifying copycat seasons
Altcoin dominance changes can be monitored through chart tools and on-chain data:
CoinGecko key charts
Cryptocurrency market capitalization chart: presenting an overall market overview
Bitcoin Dominance Chart: Track BTC.D and the Top 10 Cryptocurrencies
Stablecoin market value chart: As a reverse indicator of market sentiment, rising stablecoin market value indicates risk aversion, while falling stablecoin market value indicates that funds are flowing back into the market.
Altcoin Market Cap Chart: Tracking Every Cryptocurrency Except Bitcoin
TradingView Indicator Applications
Focus on the CRYPTOCAP:OTHERS.D indicator. This chart excludes the top ten cryptocurrencies by market value (filtering Bitcoin, Ethereum and major stablecoins) and specifically monitors the dominance of small and medium-sized market value tokens. The continued strength of OTHERS.D often indicates the arrival of a general rally with high risk preferences.
Strategies for the Copycat Season
Dynamic asset allocation
Adjusting the portfolio according to the market stage:
Bitcoin-dominated period: When BTC.D is at a high level and on an upward trend, you can overweight Bitcoin
Fund rotation period: When BTC.D shows signs of peaking, gradually rotate part of the Bitcoin position to Ethereum, Solana and other assets
Altcoin dominance period: When BTC.D falls and indicators such as OTHERS.D rise, the overall allocation of altcoins can be increased
Risk Management Signals
Build a risk preference monitoring system by combining multiple indicators:
Risk-averse signal: BTC.D and USDT.D rose simultaneously, indicating that market panic was spreading
Risk-off signal: BTC.D and USDT.D fell simultaneously, indicating that wait-and-see funds are entering the market in large numbers
Conclusion
The research on the dominance of altcoins provides a powerful perspective for observing the structure, sentiment and cyclicality of the cryptocurrency market. The key to grasping the market is often to identify the stage of capital rotation and capture the quantitative signals of the start of the altcoin season.
By combining the BTC.D benchmark chart, OTHERS.D supplementary signals, and reverse sentiment indicators such as stablecoin dominance, traders can build an analytical framework. In the new market environment where institutional funds are increasingly influential and narrative-driven sector rotation, understanding the dominance of altcoins and their related indicators will help participants find opportunities in the digital asset market.
This article is for information reference only and does not constitute investment advice.