BTC.D a study case
BTC dominance (or that of any other altcoin) is nothing more than the portion of BTC's market cap versus the total market cap of the cryptocurrency market. While the value of a token depends on the total number of tokens, dominance only depends on two factors: the liquidity of the token and the total liquidity.
But why is dominance an important parameter? Because dominance has proven over time to vary characteristically depending on the phase of the market cycle. This applies not only to BTC dominance but also to ETH and altcoin dominance.
(In this case, when we talk about altcoin dominance, we are excluding the dominance of ETH and USDT.)
That said, dominance increases if:
The liquidity entering BTC is greater than the liquidity entering the other projects;
The liquidity leaving BTC is smaller than the liquidity leaving the other projects;
The liquidity leaving the other projects is channeled into BTC;
Dominance decreases if:
The liquidity entering BTC is smaller than the liquidity entering the other projects;
The liquidity leaving BTC is greater than the liquidity leaving the other projects;
The liquidity leaving BTC is channeled into the other projects;
Dominance remains the same if:
The liquidity entering BTC is equal to that entering the other projects;
The liquidity leaving BTC is equal to that leaving the other projects;
There is yet another scenario to consider. There are times when BTC channels liquidity into stablecoins without this being comparable to the situation when BTC channels liquidity into altcoins. Typically, BTC channels liquidity into altcoins during periods of euphoria, where the intention is to distribute profits previously obtained in BTC into projects with higher potential returns. On the other hand, when BTC channels liquidity into stablecoins, it is associated with periods when security is sought during corrections (hence, we exclude USDT from the equation in comparative charts, as it is the largest and most important stablecoin).
These scenarios do not happen in isolation, which is why it is not easy to associate liquidity movements in the cryptocurrency market with exact phenomena.
However, we can always speculate and seek some support in the past.
Although altcoins have existed since 2011, there is only a record of BTC dominance charts since 2013. At that time, BTC dominance shared the total market cap with 30 other projects. By the end of 2014, this number had risen to 500. During this time, BTC dominance was never really challenged until the first bull market following the creation of ETH. This is the first cycle we will analyze.
Given the high value of BTC dominance after the peak of the first bull market, an increase in dominance due to the capital flight from altcoins to BTC was not observed. In this case, such a comparison is impossible.
Already at the beginning of the bull market in September 2015, BTC gains dominance:
The same was observed after the post-bull market bottom in 2017. As the price started to recover, BTC dominance increased:
The same has been observed in the current cycle; after the bottom was formed, Bitcoin's price has risen along with an increase in its dominance:
We can conjecture that when BTC forms a bottom, the market sentiment is one of extreme fear, leading investors to seek refuge in BTC. In the first two cases, we can see that after this period of increase, BTC enters another period of consolidation/correction, during which BTC tends to lose dominance to altcoins. This phenomenon occurs (hypothetically) because:
- Some investors sell BTC to take profits;
- Some distribute the profits made in BTC across alts that have remained at lows since the bear market;
- Some, experiencing losses, sell BTC after the recent rise to minimize their losses;
- Alts, depressed after the bear market and without significant gains, do not follow the decrease in BTC dominance, gaining ground instead.
Now let's compare the BTC price against USD with the dominance of BTC, ETH, and all alts excluding USDT and ETH, during the last two peaks and the period between them:
Although it was more noticeable during the last peak, in both instances, BTC dominance reached its peak before the BTCUSD pair hit its top. The peak in BTC dominance is characterized by the bottoming of all altcoins (excluding USDT and ETH) and the subsequent rally.
Despite each BTC peak having its own unique characteristics, the relationship between dominances has remained relatively consistent depending on the phase of the cycle.
If we divide the same time frame by the phases of the cycle:
We cannot observe the accumulation/expansion phase preceding the 2017 peak, making it difficult to precisely define the start of the blow-off top phase for that year. The only clear difference between both peaks is the behavior of ETH dominance: during the first blow-off top, ETH dominance fell while altcoins rose, whereas in the second peak, BTC dominance increased while altcoins also rose.
From a technical standpoint, we currently see a series of relatively equal lows in altcoin dominance, which could lead to a reversal when altcoin dominance drops and clears out all the liquidity from this zone:
As we can see from the previous cycle, this is exactly what happened:
(The dashed vertical lines mark the last two peaks).
From the 2017 peak to the blow-off top of the next cycle, the price steadily declined. Eventually, the price retraced and consolidated during BTC's retracement/accumulation period:
This accumulation created several lows that the price used to reverse the trend at the blow-off top.
As we can see, the altcoin chart is currently forming the same consolidation structure after the decline from the last BTC peak.
The trend in this chart is for the previous cycle's lows to be surpassed while the highs are not:
However, we can see that the price is far from the previous cycle's lows and relatively close to the highs, which was not the case in the last cycle.
Why is this? We can speculate that the growth of projects like Solana (which have taken significant market cap from ETH and BTC) makes the altcoin market (excluding ETH) less volatile, thereby retaining more market cap across all alts even during a bear market.
An interesting fact is the importance of the 26% level in altcoin dominance:
Speculating on the potential market cap for altcoins during a blow-off top, how likely is it that altcoins will significantly capture market cap from the two major projects that saw ETF approvals this year? To what extent might we expect a capitulation of altcoins given the current attention and interest in Solana?
Regardless of these considerations, from a technical standpoint, it is not expected that altcoins will see their dominance surge without the recent consolidation lows being decisively broken. Such a breakdown could occur, as seen previously, during BTC’s expansion phase, when its dominance increases abruptly, pushing the rest of the market’s dominance downward.
On the monthly timeframe, the price is being supported by a +OB (Order Block) within a +FVG (Fair Value Gap):
Drawing a parallel channel, we can see that the price also found support and reacted at the median of this channel.
Given the explanation above, it seems to me that the most important metric at this moment for determining the start of BTC's expansion and the subsequent blow-off top is this altcoin chart, along with BTC dominance.
But why is dominance an important parameter? Because dominance has proven over time to vary characteristically depending on the phase of the market cycle. This applies not only to BTC dominance but also to ETH and altcoin dominance.
(In this case, when we talk about altcoin dominance, we are excluding the dominance of ETH and USDT.)
That said, dominance increases if:
The liquidity entering BTC is greater than the liquidity entering the other projects;
The liquidity leaving BTC is smaller than the liquidity leaving the other projects;
The liquidity leaving the other projects is channeled into BTC;
Dominance decreases if:
The liquidity entering BTC is smaller than the liquidity entering the other projects;
The liquidity leaving BTC is greater than the liquidity leaving the other projects;
The liquidity leaving BTC is channeled into the other projects;
Dominance remains the same if:
The liquidity entering BTC is equal to that entering the other projects;
The liquidity leaving BTC is equal to that leaving the other projects;
There is yet another scenario to consider. There are times when BTC channels liquidity into stablecoins without this being comparable to the situation when BTC channels liquidity into altcoins. Typically, BTC channels liquidity into altcoins during periods of euphoria, where the intention is to distribute profits previously obtained in BTC into projects with higher potential returns. On the other hand, when BTC channels liquidity into stablecoins, it is associated with periods when security is sought during corrections (hence, we exclude USDT from the equation in comparative charts, as it is the largest and most important stablecoin).
These scenarios do not happen in isolation, which is why it is not easy to associate liquidity movements in the cryptocurrency market with exact phenomena.
However, we can always speculate and seek some support in the past.
Although altcoins have existed since 2011, there is only a record of BTC dominance charts since 2013. At that time, BTC dominance shared the total market cap with 30 other projects. By the end of 2014, this number had risen to 500. During this time, BTC dominance was never really challenged until the first bull market following the creation of ETH. This is the first cycle we will analyze.
Given the high value of BTC dominance after the peak of the first bull market, an increase in dominance due to the capital flight from altcoins to BTC was not observed. In this case, such a comparison is impossible.
Already at the beginning of the bull market in September 2015, BTC gains dominance:
The same was observed after the post-bull market bottom in 2017. As the price started to recover, BTC dominance increased:
The same has been observed in the current cycle; after the bottom was formed, Bitcoin's price has risen along with an increase in its dominance:
We can conjecture that when BTC forms a bottom, the market sentiment is one of extreme fear, leading investors to seek refuge in BTC. In the first two cases, we can see that after this period of increase, BTC enters another period of consolidation/correction, during which BTC tends to lose dominance to altcoins. This phenomenon occurs (hypothetically) because:
- Some investors sell BTC to take profits;
- Some distribute the profits made in BTC across alts that have remained at lows since the bear market;
- Some, experiencing losses, sell BTC after the recent rise to minimize their losses;
- Alts, depressed after the bear market and without significant gains, do not follow the decrease in BTC dominance, gaining ground instead.
Now let's compare the BTC price against USD with the dominance of BTC, ETH, and all alts excluding USDT and ETH, during the last two peaks and the period between them:
Although it was more noticeable during the last peak, in both instances, BTC dominance reached its peak before the BTCUSD pair hit its top. The peak in BTC dominance is characterized by the bottoming of all altcoins (excluding USDT and ETH) and the subsequent rally.
Despite each BTC peak having its own unique characteristics, the relationship between dominances has remained relatively consistent depending on the phase of the cycle.
If we divide the same time frame by the phases of the cycle:
We cannot observe the accumulation/expansion phase preceding the 2017 peak, making it difficult to precisely define the start of the blow-off top phase for that year. The only clear difference between both peaks is the behavior of ETH dominance: during the first blow-off top, ETH dominance fell while altcoins rose, whereas in the second peak, BTC dominance increased while altcoins also rose.
From a technical standpoint, we currently see a series of relatively equal lows in altcoin dominance, which could lead to a reversal when altcoin dominance drops and clears out all the liquidity from this zone:
As we can see from the previous cycle, this is exactly what happened:
(The dashed vertical lines mark the last two peaks).
From the 2017 peak to the blow-off top of the next cycle, the price steadily declined. Eventually, the price retraced and consolidated during BTC's retracement/accumulation period:
This accumulation created several lows that the price used to reverse the trend at the blow-off top.
As we can see, the altcoin chart is currently forming the same consolidation structure after the decline from the last BTC peak.
The trend in this chart is for the previous cycle's lows to be surpassed while the highs are not:
However, we can see that the price is far from the previous cycle's lows and relatively close to the highs, which was not the case in the last cycle.
Why is this? We can speculate that the growth of projects like Solana (which have taken significant market cap from ETH and BTC) makes the altcoin market (excluding ETH) less volatile, thereby retaining more market cap across all alts even during a bear market.
An interesting fact is the importance of the 26% level in altcoin dominance:
Speculating on the potential market cap for altcoins during a blow-off top, how likely is it that altcoins will significantly capture market cap from the two major projects that saw ETF approvals this year? To what extent might we expect a capitulation of altcoins given the current attention and interest in Solana?
Regardless of these considerations, from a technical standpoint, it is not expected that altcoins will see their dominance surge without the recent consolidation lows being decisively broken. Such a breakdown could occur, as seen previously, during BTC’s expansion phase, when its dominance increases abruptly, pushing the rest of the market’s dominance downward.
On the monthly timeframe, the price is being supported by a +OB (Order Block) within a +FVG (Fair Value Gap):
Drawing a parallel channel, we can see that the price also found support and reacted at the median of this channel.
Given the explanation above, it seems to me that the most important metric at this moment for determining the start of BTC's expansion and the subsequent blow-off top is this altcoin chart, along with BTC dominance.
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