Bitcoin Dominance and The Case of Altcoins - Market Dominance Analysis

Up until 2017, Bitcoin (BTC) trading and investment dominated the entire cryptoasset market to an overwhelming degree. Before then, Bitcoin rarely ever dipped below 90% dominance of the market.

Dominance over time(source: Coinmarketcap.com)

Something clearly changed, however, in 2017. The balance began to shift abruptly and dramatically. Within five months, from February to July, Bitcoin´s dominance fell nearly 50%, to below half of overall dominance.

Bitcoin dominance transformed(source: TradingView.com)

This was the first “alt season,” and a couple more followed throughout 2017-18. Intense volatility provides opportunity for huge profit - and loss - during these periods. Thus, they have become the object of intense anticipation.

History on the Charts

Since these pseudo-cyclical events began in 2017, they have laid plenty of digital ink on the charts with which to graph a market structure.

We can see where these “alt seasons” have come, by looking at both the Bitcoin dominance chart, and the “Other” dominance chart, which is comprised of the basket of altcoins excluding the most popular and well funded ones; like Ethereum, Litecoin, XRP, or NEO. These charts are inputted through data from CoinMarketCap.com.

Can alts get a bounce or what?(source: TradingView.com)

There have only really been three of these periods, and the first was the biggest and most profitable (or destructive) for portfolios - giving rise to a sort of myth of an event that has never since repeated itself at the same scale.

We can see that the Other dominance is reaching an historically low point, at about 5.5% of market capitalization. Although simplistic, and despite a widespread belief that dominance charts should not be charted like price charts, we clearly see a falling wedge pattern which has led straight into this very low level.

Bitcoin dominance, charted(source: TradingView.com)

Looking at the Bitcoin dominance chart, we see the obverse side of things. BTC dominance is currently trending in an area not seen since 2017, harkening back to a different era in crypto. Intuitively, we could vaguely expect that dominance is too high here at will get rejected.

ICO Era

Many surmise that the thing that changed, and caused a shift in the nature of crypto market share, was the era of Initial Coin Offerings or ICOs. These became popular in 2017, especially because of the newly pioneered technology of smart contracts on the Ethereum blockchain.

ICO landscape has changed a lot(source: Coindesk.com)

We can see on this chart, compiled by Coinbase, something like a boom period. The number of ICO projects exploded in 2017 and peaked late in that year, which resulted in all of the alt seasons - and culminated in the last real one, in the very beginning of 2018.

This era seems over now, as ICOs, hounded by national regulators - especially in the U.S. - for possible securities violations, have given way to a diminishing number of higher-profile projects. Security Token Offerings (STOs) and Initial Exchange Offerings (IEOs) have filled in the void left by ICOs’ departure from the scene, and these new projects are often open only to private, government-approved investors - like in the case of Telegram’s 2018-19 sale.

Between the charts and the ever-changing crypto investment landscape, it is an open question whether Bitcoin’s current presence at an inflection point on the dominance chart will actually result in an inflection. Although investment into crypto projects is probably only getting started, the ICO era of yesteryear is surely gone - at least in that form.

And without this key mechanic, the source of the next alt season is unknown - and it perhaps foolish to assume one will come again soon. 

Bitcoin Price Surges Above $9,300 for First Time Since June 25

On Monday (July 6), the Bitcoin price managed to surge past the $9,300 level for the first since June 25, a move that was likely powered by the current bullish in the stock markets of China and the United States.

Today's strong rally in the world's major stock markets started was led by China, where the Chinese government is apparently encouraging investors to buy stocks.

According to a report by CNBC, "a front page editorial in state-owned China Securities Journal" (publishe-d earlier today) talked about the “wealth effect of the capital markets” and suggested that a “healthy bull market" was important for the economy at this time.

Peter Boockvar, chief investment strategist at Bleakley Advisory Group, says:

"We have the Fed to juice bull markets, China has its state media."

The CSI 300, which is "a capitalization-weighted stock market index designed to replicate the performance of the top 300 stocks traded on the Shanghai Stock Exchange and the Shenzhen Stock Exchange", closed over 250 points higher at 4,670.09, up 5.67%. 

CSI 300 Chart by Google Finance on 6 July 2020.png

As you can see in the above chart from Google Finance, in the past five trading session, the CSI 300 index has gained over 13%, the most in a five-day period since December 2014, and helping the CSI 300 to reach a level last seen in June 2015.

CNBC says that although "China’s economy faces many hurdles, including trade issues with the U.S. and the growing friction as the economies move to decouple",  in the near term, "the prospect of an improving China spilled over to other markets, boosting sentiment for global trade."

Europe's major stock markets followed China's and all closed higher.

As for the U.S. stock market, premarket trading data indicated that the market would be having a good day, and it has not been wrong so far.

Currently (as of 18:37 UTC on July 6), the Dow Jones Industrial Average (DJIA), the S&P 500, and the Nasdaq are at 26196.15 (up 368.79 or 1.43%), 3172.03 (up 42.02 or 1.34%), and 10404.81 (up 197.18 or .93%) respectively. The leading sector was (as usual) technology, with Amazon and Netflix setting new all-time highs, helping the tech-heavy Nasdaq to power itself to a new all-time high.

This is what President Trump tweeted around 10 minutes after the U.S. stock market opened:

Today's stock market rally in the U.S. means that the S&P 500 and the Nasdaq are both on a five-day winning streak. 

So, what's fuelling investors' perhaps surprising amount of bullishness on stocks in the midst of the COVID-19 pandemic? This might be especially mystifying in the case of the U.S., where we are seeing around 50,000 new daily cases of COVID-19 (even though, thankfully, the number of death are going down).

It seems that investors and traders believe that:

  • As lockdown measures are eased, the outlook for businesses should keep improving.
  • There are encouraging signs from the pharmaceutical industry that we will soon have good therapeutics in the next few months and reliable vaccines by next year.
  • Governments around the world will continue to support the financial markets with monetary and fiscal stimulus.

Andrew Brenner of National Alliance told CNBC:

"I’m starting to believe the Covid case are an inverse indicator. The worse it gets, the more the market does better because it means more Fed and fiscal stimulus will come towards the markets."

The optimism that is fuelling the stock market rally appears to be also helping Bitcoin since today Bitcoin shake off the lethary of the long Independence Day weekend -- which saw Bitcoin dropping below $9,000 at 21:15 UTC on Sunday (July 5) and bounce back above $9,300 for the first time in 11 days:

2 Week BTC-USD chart on 6 July 2020.png

Featured Image by "WorldSpectrum" via Pixabay.comSave