A Brief History of Bitcoin Dominance

Binance Academy · 2023-06-01T09:27:58.000Z

Summary Bitcoin dominance is the share of the original cryptocurrency, BTC, in the capitalization of the entire cryptocurrency market. For some time since its creation in 2009, bitcoin remained the only digital asset in existence and therefore, naturally, solely represented the entire capitalization of the cryptocurrency market. However, over time, things began to change. The year 2013 saw the first wave of altcoins that added their value to the cryptocurrency market capitalization. The year 2015 was marked by the birth of Ethereum, the closest rival to Bitcoin which gave birth to the ether currency, then, in 2017, the success of ICOs led to a new and increasingly significant decrease in the dominance of BTC which reached its historic low and then recovered and exceeded 50% after a few months. Today, BTC's dominance faces its biggest competition from DeFi, NFTs and metaverse tokens, and more than 20,000 cryptocurrencies other than bitcoin.

TL;DR
Bitcoin dominance is the share of the original cryptocurrency, BTC, in the total cryptocurrency market capitalization. For some time after its creation in 2009, Bitcoin remained the only digital asset in existence and, therefore, was the sole representative of the entire cryptocurrency market capitalization. However, over time, things started to change. In 2013 we had the first wave of altcoins that added their value to the cryptocurrency market capitalization formula. 2015 was the birth year of Ethereum — Bitcoin's closest rival that introduced the Ether currency — and then in 2017, the ICO boom resulted in BTC's even more diluted dominance, reaching an all-time low. There was a recovery a few months later, exceeding the 50% value. Today, BTC's dominance faces its biggest competition in the form of metaverse tokens, DeFi, NFTs, and more than 20,000 other cryptocurrencies.
IntroductionBitcoin, the world's first cryptocurrency, was publicly launched in 2009 by an anonymous developer (or group of developers) known as Satoshi Nakomoto. Since then, despite increased competition, Bitcoin has remained the largest and most valuable cryptocurrency in the world. Its underlying technology has also inspired the development of thousands of new cryptocurrencies known collectively as alternative currencies, or altcoins.
Bitcoin's position in relation to other digital assets continues to be extremely important, being considered as an indicator of the general state of the cryptocurrency market. To measure Bitcoin's market value in relation to the overall cryptocurrency market, traders and analysts use a ratio called Bitcoin dominance, or BTC dominance.
What is BTC Dominance?BTC dominance is Bitcoin's share of the total cryptocurrency market value. It is calculated by dividing the market capitalization value of BTC by the total cryptocurrency market capitalization value.
Why is it important? Historically, traders have used BTC dominance to try to identify whether altcoins are trending up or down relative to Bitcoin. For example, many believe that if altcoins are on the rise, the cryptocurrency market should also begin an uptrend (bull market). In 2017, for example, a significant decline in BTC dominance signaled a surge in altcoin prices (rather than a decline in the price of BTC), coinciding with the entire market entering a bull phase.
From one cryptocurrency to thousandsIn 2011, the first altcoin, Litecoin, was created, and in 2013 — “the year of Bitcoin” according to Forbes magazine — the number of new altcoins on the market began to increase rapidly. As of May 2013, the cryptocurrency market had at least ten tokens, including Litecoin (LTC) and Ripple's XRP.
At the same time, the price of Bitcoin soared as more investors explored the digital asset sector for the first time. However, even with some newcomers to compete, BTC's dominance remained around 95% during this period.
The birth of EthereumIn 2015, Vitalik Buterin and a team of developers launched the Ethereum (ETH) network. It began to rival Bitcoin as a blockchain that enabled more use cases beyond financial services like money transfer. Undeterred by competition from Ethereum's native token ether (ETH), bitcoin continued to represent around 90-95% of the cryptocurrency market. Things only started to change in 2017 — with the boom in initial coin offerings (ICO). ICO fever Initial coin offerings (ICOs), a popular crowdfunding method for early-stage cryptocurrency projects, have become was a prominent trend from 2017 to 2018. There were around 2000 ICOs during this period, with a cumulative value of over $10 billion raised. Funds began to flow from the Bitcoin network into many newer altcoins that emerged at the time. Some investors believed in the compelling but unproven use cases, while others were more interested in profiting from the dramatic price swings. The unprecedented influx of altcoin competition resulted in the first major decline in Bitcoin's dominance, reaching an all-time low of around 37% in January 2018. The Crypto Winter of 2018Although it generated considerable notoriety for cryptocurrencies, the ICO boom it didn't last long. Investors noticed that many ICO projects lacked basic fundamentals or had questionable business practices. Some projects have even become the target of regulatory reviews by US agencies and other authorities. This negative sentiment eventually spread across the entire industry and the overall cryptocurrency market experienced a prolonged period of price decline and stagnation.Bitcoin's RecoveryWith the devaluation of many altcoins and general investor disillusionment with ICOs, the dominance of BTC gradually returned to over 50% in the final months of 2018.In 2019, the price of Bitcoin showed a slight recovery, trading at approximately $7,000 by the end of the year, while BTC's dominance peaked at around 70% in September. The digital asset, however, would remain relatively stable until the COVID-19 pandemic in 2020. The market in the COVID pandemic From 2020 — as a consequence of a sharp drop in the COVID pandemic period — the cryptocurrency market would enter a record bull run. Simultaneously, BTC dominance reached 72% in January 2021, the highest value since 2017, before falling to 39% in mid-2021. With the pandemic, many people, bored and stuck at home, started investing and trading. Meanwhile, to offset the economic slowdown from the pandemic, governments around the world distributed money to stimulate their struggling economies. Retail traders invested a considerable portion of these funds in stocks, forex or the cryptocurrency market for the first time. Afterwards, following all the media attention to cryptocurrencies during the second half of 2020, altcoins became an increasingly attractive choice. , although risky, for retail investors, especially newcomers looking for quick gains. The price of Shiba Inu (SHIB), for example, increased beyond the percentage value of 40 million in 2021.
Furthermore, the rapid growth of innovations such as decentralized finance (DeFI) and NFTs, which existed mainly on competing blockchains such as Ethereum and Solana (SOL), contributed to Bitcoin losing a larger share of its market share. Solana's price rose from $1.50 to an all-time high of $250 in 2021 after sparking interest from institutions and retail traders due to its underlying technology.
Since then, BTC's dominance has struggled to surpass the 50% level. BTC's recent slow rise in dominance may have something to do with the launch of ETH 2.0, Ethereum's long-awaited upgrade to the Proof of Stake mechanism, and the current bear market.
Final considerationsIn recent years, the growth of the altcoin market has diluted Bitcoin's market dominance. Bitcoin now competes with DeFi tokens, the popular NFT sector and thousands of other cryptocurrencies, unlike the early years when there were very few competitors.
Even so, Bitcoin is still the leading cryptocurrency in terms of market capitalization. It is unlikely that he will lose his dominance in the near future. Many investors view Bitcoin as a store of value because of its finite supply — hence the nickname “digital gold.”
But most importantly, Bitcoin's status as the industry's first cryptocurrency has given it a competitive advantage in the digital asset market. However, history has already shown that if something better comes along, this first-mover advantage may not be enough. It remains to be seen whether we will ever have another cryptocurrency capable of dominating the crypto market as Bitcoin has done so far.