Rethinking Bitcoin’s Dominance at 51% – A Misleading Measure?

Bitcoin (BTC) market dominance is traditionally seen as a key indicator of market strength. The benchmark is currently at a multi-year high of over 51%.

However, a closer analysis indicates that the concept of “Bitcoin supremacy” may not be as informative as it seems, especially considering the wide volatility of the cryptocurrency market.

Supremacy: Misleading BTC Indicator?

The term “Bitcoin dominance” refers to BTC's share of the total market capitalization of all cryptocurrencies. While on the surface it seems to reflect the strength of the Bitcoin market, this measure mostly represents the trading activity between Bitcoin and Ether (ETH), the second-largest cryptocurrency and the largest altcoin by market cap.

This dynamic can distort Bitcoin's dominance, especially when major changes occur in the ETH/BTC trading pair.

Related: Ethereum's Losing Streak With Bitcoin Reaches 15 Months – Can ETH Price Reverse Course?

That said, ETH's “dominance” or crypto market share has remained relatively stable for the past few years at 17% – the inverse relationship between BTC.D and ETH/BTC is clearly seen in the chart below.

The role of stablecoins and “side” capital

Adding complexity to the interpretation of Bitcoin's dominance is the role of stability coins such as Tether (USDT), which today is the second largest “altcoin” in market dominance at around 6.3%.

USDT's market cap growth is often not a direct result of crypto market activity, but what can be called “sideless” capital is the flow of funds that are primarily dollar-denominated and often waiting to enter the market sooner or later.

Therefore, an increase in the market value of stablecoins such as USDT does not necessarily reflect investment in cryptocurrencies, but rather the willingness of investors to participate or hedge their crypto exposure.

Meanwhile, the share of everything that isn't Bitcoin, ETH or USDT is only around 25%, falling from a multi-year high of 35% in 2022.

Bitcoin “Strength” or Ethereum Market Volatility?

In the year Throughout 2023, the narrative of Bitcoin dominance has changed. While it seemed to regain its dominance at the start of the year, this was more reflective of ETH/BTC trading activity than overall market activity.

Similarly, the periods when Bitcoin's dominance was seen to decline as the Chappella correction affected the price of ETH, were more indicative of Ethereum market activity than a decline in the “strength” of the overall Bitcoin market.

In the end, the dominance chart may not be an accurate measure of Bitcoin's position in the market. It provides a narrow view of the market with the ETH/BTC trading pair and synthetic dollars swinging wildly.

It is important to consider a more careful approach to market parameters, which includes the multifaceted nature of cryptocurrency investment and activities.

This article does not contain investment advice or recommendations. Every investment and business activity involves risk, and readers should do their own research when making a decision.