Rethinking Bitcoin ‘dominance’ at 51% — A misleading metric?

Bitcoin’s (BTC) market dominance has historically been seen as a key indicator of its market power. At the moment, the metric is at a multi-year excessive above 51%. 

Nonetheless, a better evaluation means that the idea of “Bitcoin dominance” won’t be as informative because it appears, particularly when contemplating the broader dynamics of the cryptocurrency market.

Dominance: A deceptive BTC indicator?

The time period “Bitcoin dominance” refers to BTC’s share of the full market capitalization of all cryptocurrencies. Whereas on the floor, it appears to mirror Bitcoin’s market power, this metric largely represents the buying and selling exercise between Bitcoin and Ether (ETH), the second-biggest cryptocurrency and the most important altcoin by market cap. 

This dynamic can distort the perceived dominance of Bitcoin, particularly when main shifts happen throughout the ETH/BTC buying and selling pair.

Associated: Ethereum shedding streak vs. Bitcoin hits 15 months — Can ETH worth reverse course?

That stated, ETH’s “dominance” or share of the crypto market has remained comparatively steady for the previous few years round 17% — whereas the seemingly inverse relationship between BTC.D and ETH/BTC is clearly seen within the chart under. 

The function of stablecoins and “sidelined” capital

Including complexity to the interpretation of Bitcoin’s dominance is the function of stablecoins like Tether (USDT), the second-biggest “altcoin” by market dominance at round 6.3% at this time.

USDT’s market cap development is commonly not a direct results of cryptocurrency market exercise however relatively an inflow of what will be termed “sidelined” capital—funds which can be basically in {dollars} and sometimes ready to enter the market ultimately.

Subsequently, the rising market cap of stablecoins like USDT does not essentially mirror an funding in cryptocurrencies, however relatively the preparedness of buyers to have interaction or hedge their crypto publicity.

In the meantime, the share of all the things else that is not Bitcoin, ETH or USDT is just at round 25% and falling from multi-year highs of 35% in 2022. 

Bitcoin “power” or Ethereum market dynamics? 

All through 2023, the narrative of Bitcoin’s dominance has fluctuated. Whereas it appeared to regain dominance early within the yr​​, this was extra reflective of the ETH/BTC buying and selling dynamics relatively than an mixture market motion.

Equally, moments when Bitcoin’s dominance appeared to wane, as seen with the Shapella upgrade impacting ETH prices​​, were more indicative of Ethereum’s market movements rather than a decrease in Bitcoin’s overall market “strength.”