Bitcoin Dominance at Yearly High as Crypto Market Shrinks to $1.3T

Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

The price of Bitcoin may still be bound to the $30k range, but the same cannot be said for its dominance rate. In the aftermath of Terra’s LUNA/UST collapse, Bitcoin maximalism gained traction across social media and so did Bitcoin’s dominance.

The latter is Bitcoin’s market share among total active cryptocurrencies in existence. Presently, the global cryptocurrency market cap sits at $1.29 trillion, which is -125% down from its peak last November at $2.9 trillion. Out of that crypto market, Bitcoin presently constitutes 44.6%.

Amid Terra’s total failure in May, Bitcoin reasserts dominance. Image credit: Trading View

For the last year, Bitcoin’s dominance has been on a steady decline, going from 49% last July to 40% at the start of 2022. At the same pace, Ethereum share has been rising, which led many to call for BTC/ETH flippening. However, the fact that Bitcoin broke out from a year-long downward trend in the middle of a bear market speaks volumes.

What is the Fate of Altcoins?

It is not often that an entire crypto ecosystem is wiped out in less than a week. Terra’s multi-billion erasure has reminded many investors that the crypto market relies on digital code. And this code can have errors, exploits, lack foundation, or simply be pitted against too many competitors.

After Bitcoin launched in 2009, there has been an exponential growth of cryptocurrencies. Image credit: Statista.com

With over 10k altcoins in circulation, a major problem emerges. For the investor, it is becoming increasingly difficult to filter, select and commit to the right digital asset. Sen. Elizabeth Warren recently noted this in her letter to Fidelity, opposing the company’s move to make crypto available for investment in 401(k) savings plans.

“The challenge for plan participants to make informed investment decisions given that ‘it can be extraordinarily difficult, even for expert investors, to evaluate these assets and separate the facts from the hype’”

Sen. Warren to Fidelity Investments

While it is inevitable that smart contracts will make many centralized financial services obsolete, there has also been a wave of DeFi exploits. In 2021, attacks on DeFi protocols increased by 1330%, typically as flash loan attacks.  These incidents have had a continual negative pressure on the crypto market, as exemplified by the DeFi Pulse Index (DPI), the S&P 500 equivalent for the DeFi token sector.

DPI vs. BTC performance over one year. Image credit: Trading View

Speaking of DeFi at its worst, of all people, Do Kwon of Terraform Labs, said that 95% of altcoins are going to die 8 days before his Terra ecosystem crashed.

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Fed Still Exerting Monetary Pressure on Bitcoin

With all these altcoin headwinds and inherent uncertainties in play, it is then reasonable to expect Bitcoin to reassert its dominance. Its conservative coding practices, proof-of-work consensus, and spotless hack-free record are geared toward making Bitcoin a safe haven.

However, it is yet to be determined if Bitcoin is a safe haven against inflation, as Turkey’s adoption rate spike would indicate amid its 70% inflation rate.

Yesterday, we explained why cryptocurrency volatility, headed by Bitcoin, is decreasing while the equity market volatility is increasing. The Fed’s quantitative tightening (QT) is pulling the rug under the stock market. In turn, it is also pulling down cryptos with it. With that said, historical data shows some optimism.

Case in point, Twitter user and former math professor @AurelienOhayon noted bullish correlation convergence between Bitcoin volume and Donchian Channels indicator (DC). The latter measures volatility to determine if an asset is either oversold or overbought.

Image credit: Twitter

Whichever way the market goes, it is safe to say that altcoins with lower market cap, including Ethereum, will keep tagging along. In this dynamic, the big market cap leader, Bitcoin, offers fewer X gains while lower cap altcoins often offer two-digit gains. However, that can only happen in the shadow of Bitcoin’s dominance.

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Do you think the crypto market will ever leave the Fed’s influence? Let us know in the comments below.

About the author

Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird’s US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firm specializing in sensing, protection and control solutions.

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