The first cryptocurrency is losing its influence on altcoins. Experts explained why this is happening and what it could mean for the market
Yesterday, April 5, the total capitalization of the cryptocurrency market crossed the $2 trillion mark for the first time. Over the past 24 hours, the capitalization of the crypto market increased by 4% and now stands at $2.03 trillion. According to CoinGecko, as of 10:00 Moscow time, Bitcoin ranks first in the ranking of the most capitalized cryptocurrencies with $1.09 trillion. The dominance index of the main digital coin is at 54%. But this is the minimum index value over the past two years. The last time it was at this mark was in April 2019.
Bitcoin dominance in simple words
The Bitcoin dominance index shows the share of its capitalization in the cryptocurrency market, noted Sergei Troshin, head of the Six Nines data center. According to him, until recently, the main digital coin and several other altcoins from the top 5 could boast huge influence in the market, however, as cryptocurrencies develop, Bitcoin’s dominance is decreasing, which is considered a sign of healthy changes in the market, as investors are interested in a wider range of assets.
Bitcoin dominance can be calculated as follows: divide the capitalization of the main cryptocurrency by the total market capitalization of crypto assets and multiply by 100%, explained Gleb Kostarev, director of Binance in Russia and the CIS. He noted that the first platform that began tracking this indicator was the CoinMarketCap aggregator.
What are the changes?
The decline in the share of Bitcoin is due to the fact that other coins began to appear, such as:
- Ethereum;
- Ripple;
- Litecoin;
- other.
Therefore, the dominance of the first cryptocurrency cannot be considered fixed. The market is dynamic, the situation is constantly changing, it depends on:
- VTS price tag;
- fluctuations in the value of other coins;
- extraction of completely new digital assets from the large Republic of Kazakhstan.
Some types of electronic money immediately become very popular when they appear, but this does not last long. Therefore, BTC dominance cannot be considered a suitable indicator that can help track cryptocurrency trends.
What does dominance show?
The Bitcoin dominance index is important for understanding the general direction of the market at the moment, emphasized Sergey Troshin. If the index declines, it means investors are flocking to altcoins, demonstrating a penchant for taking risks in search of new names, he added. According to him, this usually happens in a growing market. If altcoins are actively sold and transferred to Bitcoin, it means that risk aversion is growing in the market and a reorientation is taking place towards a more “solid” cryptocurrency, explained the head of the Six Nines data center.
“Bitcoin is considered a digital analogue of gold, so over time it is increasingly associated with the precious metal and market patterns that unfold around gold at one stage or another,” the expert noted.
A 1% drop in the dominance of the main cryptocurrency means an approximate increase of altcoins by 10%, says Andrey Podolyan, CEO of the crypto exchange cryptorg.exchange. He also draws attention to the fact that now this is the situation in which Bitcoin’s dominance is falling, while altcoins are rapidly growing against this background.
When will altseason start? (Market analysis)
While Bitcoin strives to renew its all-time high, investors and analysts are wondering when the long-awaited altseason will come and whether it will come at all?
Today we will try to analyze the situation on the altcoin market, remember what the previous altseasons were like, what the indicators signal, and how best to make money on alts during the altseason.
What is altseason?
Altseason is the time when Bitcoin’s dominance is decreasing and part of the capital begins to move to other cryptocurrencies. As a result of this, other cryptocurrencies on the market in ALT/BTC pairs begin to grow significantly, and Bitcoin itself often declines after updating its historical maximum or enters a flat stage. Thanks to this, many altcoins are showing significant growth.
Unfortunately, everything ends very quickly, investors begin to take profits, thereby increasing the amount of Bitcoin, and alts, as a result of a sharp sale, begin to decline.
When prices in ALT/BTC pairs rise, the share of Bitcoin's market capitalization falls. “BTC Dominance” reflects this phenomenon (% of bitcoin of total market capitalization). Analyzing the rise and fall of BTC dominance gives us a clear historical picture of altseasons.
This does not happen so often; the alt-season can be compared to the flower business, when most of the income comes in one day, namely Valentine's Day, March 8th.
Altseason 2017-2018
In 2022, altcoins posted huge gains for about 10 weeks, accounting for 19% of the entire year, and it was the single most profitable year for altcoins. In the entire history of cryptocurrencies, it can rightfully be considered the year of the heyday of altcoins, even despite the fact that Bitcoin showed an increase from $1 thousand to $20 thousand.
Due to the ICO Boom of 2022, everything led to extreme over-capitalization of alts, with many comparing ICOs to the dot-com bubble or tulip mania.
FOMO has definitely done wonders for tokens like ETH, which have been used to launch new projects on the blockchain. Thanks to this, the market is filled with useless projects. But what can we say, if most projects die after raising funds and after listing on a large exchange, they cease further activities.
In May 2022, altcoins grew for about a month, and in August and December for several weeks, many alts showed ten or even a hundredfold growth.
Take for example Ripple, which showed a record result with an increase of 36,000%! Likewise NEM, Ethereum, Litecoin,
even Tron, thanks to the competent marketing of Justin Sun, was able to show a rise of 17,200% in a month. That is, an investment of $100 in December 2022 into the Tron token would increase the investment by 172 times a month later.
You can also recall the amazing situation with EMC2 tokens.
An unknown project, thanks only to rumors about partnerships with large companies, showed an increase in value of half a million percent over the year - this allowed it to enter the top 20 on SMS by market capitalization.
The developers and early investors clearly emerged as millionaires. And subsequent investors who bought on the news were left with a bag of worthless shieldcoins, as the rate collapsed by 99% during the 2022 correction.
They worked perfectly on the principle of “buy rumors - sell news.” And there were quite a lot of such examples.
Bitcoin dominance began to decline significantly from the beginning of December 2022, from 72% it dropped to 35% in just one month, which caused a significant increase in altcoins, plus a constant influx of new users, media coverage of cryptocurrencies increased market growth.
By the beginning of 2022, the capitalization of the entire market reached $830 billion, of which $550 billion was in alts.
As a result, a correction began in 2022 and in just 4 months the altcoin market lost more than $400 billion, having decreased by 75%.
https://charts.cointrader.pro/charts.html?coin=MARKETCAP-ALTCOIN%3AMARKETCAP
There was a slight market growth in April, many call it the last altseason, but it lasted only a couple of weeks and already in May the market began to decline again. The decline ended at the end of the year.
Most altcoins have lost more than 95% of their highs in value. Capitalization completely dropped below $50 billion, which was less than 10% of the peak values.
With the fall of alts, Bitcoin also fell, but its dominance continued to increase, since investors often prefer to take profits in Bitcoin, and many projects in Ether, as a result of which Bitcoin’s dominance was able to recover to 60%.
Many projects have ceased operations after a year-long correction and have not written a single line of code in the last couple of years, but they are still traded on major exchanges. Apparently only because the exchange still has a baggage of shields and somehow needs to get rid of them.
2020
Summer season of DeFi projects
Now, 3 years later, the only hype around altcoins occurred from the beginning of summer 2022 and by September it had already ended. This excitement, as we already know, was due to the development of DeFi projects, new personalities, interesting ideas and innovative projects appeared, and even developers of forgotten projects who rose from the dead began to launch their farms and swaps. The market gradually began to revive.
During the popularity of DeFi, over $14 billion was blocked in them, the capitalization of altcoins quickly inflated, as soon as someone announced that they were “True DeFi”, bringing in thousands of% per annum.
Some even managed to make hundreds of X's on this, some got merged, and some even continue to study this topic in detail. But the rush quickly ended and trading volumes also began to decline significantly in September.
If we look at the dominance of Bitcoin, then as we see from the beginning of summer it was at local maximums within 70%, with the popularity of DeFi, part of the capital left Bitcoin and by the end of summer the dominance had already decreased to 57%.
Over the past 3 months, all attention in the market has been focused exclusively on Bitcoin. Everyone watched as it updated its annual maximum every week, then a two-year maximum and now it has already updated its All-Time-High on many exchanges, its dominance has increased to 67%. And it would seem that the highs have already been updated, the alts seem to be showing X’s, and what’s next? It turns out we missed everything?
No. If we look at violas from the other side, then things are not so clear.
The growth of other tokens is due to the growth of Bitcoin itself; due to its dominance, the entire market depends on it. If Bitcoin is growing, then most of the alts will also show an increase in the ALT/USDT pair, but by ALT/BTC itself they will either stand still or fall by an equivalent percentage of Bitcoin’s growth.
Now it’s worth asking the question: is there an altseason?
The blockchaincenter service was able to create a simple resource where you can find out the current stage of the altseason. They found that the altseason should ideally last 3 months and studied the effectiveness of the top 50 cryptocurrencies by capitalization.
The more altcoins show growth against BTC, the higher the altcoin season index. If over the last 3 months 75% of all altcoins outperform BTC, then this is the same altseason!
But now the figure is at 8% out of 100.
Accordingly, 4 out of 50 projects were able to outpace the growth of Bitcoin over the past 3 months: Ripple, Stellar, Waves and CEL. If the first two had fundamental news and reasons for growth, and waves always grows at the end of the year, then Celsius Network grew 10 times and distributed over $4 billion in cryptocurrency loans, which in the end could end sadly for them.
According to the creator of Compound, the Celsius project may end up either bankrupt or a Ponzi scheme. In addition, the token is not traded on any of the major exchanges, which may alert investors to this project. There were also rumors about problems with withdrawing funds from the platform.
All the remaining alts still show either a slight plus or continue to fall towards BTC.
If you look at this chart, you can see that similar values were in December 2022, April 2022. In August of the same year, you can see that the alt index was in the zero range, but then absolutely the entire market was sliding into an unprecedented abyss. And the last time the indicator was in the green zone was during the summer DeFi trend.
To check whether the data corresponds to reality, it is enough to open any altcoin from the top 50 to Bitcoin. Most of which are at the very bottom, and some are showing a slight rebound.
For example, on the weekly chart, EOS/BTC is trading at October 2022 values, which is lower than the values when the altseason began.
With Litecoin, things are even sadder; compared to Bitcoin, it has rolled back to the levels of March 2022.
DASH/BTC has long been forgotten by everyone. By cue, it has updated the All Time Low of 2015, but still remains in the top 30 largest cryptocurrencies.
The same list includes NEO, IOTA, ZCASH and others.
Reasons for altseason
Thus, there are several reasons that point to the bullish growth of altcoins.
Latest market trends
The best altcoin by market capitalization, Ethereum, is showing good growth; if it manages to surpass Bitcoin in growth in the coming weeks, then it is likely that this will give the green light to alts and push DeFi tokens into a second wave of growth.
Chainlink and Cardano are also waking up and have been posting healthy double-digit percentage gains for several weeks, indicating that there are large investors in the market.
Declining Bitcoin Dominance
The price of Bitcoin is within its historical maximum; a strong correction of 20-30% can refresh the alts, allowing many to enter at very good prices. In the event of a flat, you can even take a closer look at buying alts, as a result of which the dominance of the cue ball will begin to decrease to values of 50%, or even lower.
Media coverage
The media is just beginning to remember about Bitcoin, that it once cost 20 thousand and now it is again in the same range, but there is not much excitement yet.
Most likely, it is not yet time for mass advertising, since it is necessary to prepare all the ground for newcomers and purchase alts for subsequent unloading to newcomers.
Market sentiment
There have already been many stories happening outside the industry in recent months: Arya Stark is thinking about buying Bitcoin, Dogecoin and Ripple are being pumped up on TikTok, legendary investors are starting to prefer buying Bitcoin over gold, payment companies offer the opportunity to store and purchase crypto and many other interesting things.
The derivatives market is highly developed
With the development of derivative instruments, theories are beginning to circulate that the market is unable to demonstrate the same X's that it did in 2017. Futures and options certainly improve the market, reduce volatility, add liquidity and make cryptocurrency trading more serious.
But as practice shows, even XRP, which has a 75th maximum leverage, is capable of growing by 200% in a week, and short sellers also became fuel, helped to add a couple of% with their own liquidations, and this is a shieldcoin with a capitalization of $30 billion.
Now projects exceeding 100 million caps are in the top 100, and in order to get them to the top 20, you need to give at least 15-20 x, which is quite possible in the upcoming altseason.
The alt market is still very small
Despite the fact that Bitcoin’s capitalization has updated its maximum, the total value of all altcoins has barely reached $200 billion, it is still negligible even compared to the beginning of 2018.
For comparison: Tesla’s capitalization is $550 billion, and the capitalizations of all altcoins are half that. Half the number of companies that were recently included in the S&P500 index!
The chain of all these events in 2022 may resemble 2017 for many, which requires being prepared for any market movement that may occur. During the 2022 bull run, Bitcoin suffered about 5 major corrections of over 30% decline. In 2020, you can remember one moment - March 13, or as this day was called - Black Thursday. The subsequent growth of Bitcoin was accompanied by a prolonged flat and minor corrections. Now you can expect anything from such a market.
Results
In general, we have shared our vision of the current situation of the altcoin market and we recommend that you carefully prepare for this, carefully select projects for further investment, since such a market has not existed for 3 years. Because we expect a new high not only for Bitcoin, but for the entire industry.
Benefit for the trader
The Bitcoin dominance index is used by traders to analyze the market situation and make decisions about entering the asset, explained Gleb Kostarev. Based on this indicator, traders determine a strategy: take positions in the Bitcoin market, or move capital to altcoin markets, or hedge their assets in dollars or stablecoins.
— Further growth or fall below $40 thousand. Two forecasts for the Bitcoin rate
— Smart contracts and DeFi. What tokens to pay attention to this week
- “There will be no collapse.”
What awaits crypto investors in April You will find more news about cryptocurrencies in our RBC-Crypto telegram channel.
It is advisable to treat Bitcoin dominance as a probability of developments
In market conditions, the dominance of Bitcoin provides some information, but it is better not to consider it a chance for success, but to perceive it as a probability. After a sharp decline in the dominance of military-technical cooperation:
- the need for other coins increases;
- after some time, the price of Bitcoin recovers;
- money flows back at the same speed.
After all, the first cryptocurrency is the main one, it dominates by right of the firstborn.
Important information! You need to understand the fact that rarely an increase in sales and purchases of cryptocurrencies is associated with the infrastructure of a particular asset. Financial bubbles and pump schemes have an impact here, when a manipulative increase in the rate of digital currencies or other similar assets is deliberately created. Usually after some time the market collapses.
A similar situation happened with Bitcoin 4 years ago:
- Over 4 months of 2022, the dominance of the first cryptocurrency decreased from 85% to 38%.
- Then the BTC slowly began to grow and rose to 62%
- Then it collapsed again.
By January 12, 2018, it showed the lowest level, which was 33%. Since that time, Bitcoin has never reached 85% again, as other coins began to be mined and took over some of the funds.
Peculiarities
The main disadvantage of the BTC Dominance Index is that it is easy to manipulate, since users can influence through airdrops. This is a procedure for distributing coins to owners of a specific digital asset: bitcoin or ether. Many analysts criticize the usefulness of RK. It is classically defined as the number of units of a particular asset multiplied by the value of that currency.
Investors use the Dominance Index to understand the market price of coins. But market capitalization of assets does not equal float. Some part of Bitcoin is always outside the active market, since BTC is placed as a reserve or long-term investment. Owners of storage facilities and cold wallets do not provide access to them. Sometimes it happens that the owner of the coin shows no signs of life at all.
2014 was a significant year in this regard. Experts have estimated that approximately 30% of all digital assets have not been touched for more than one year. Despite this circumstance, these coins are taken into account in the standard definition of the Republic of Kazakhstan, but there is no access to them.
Some digital assets “died” during this period. The team behind them either never mined these coins or this cryptocurrency was just a scam. This makes it difficult to calculate the performance of the Bitcoin Dominance Index.
