- Bitcoin dominance nears 60%, the highest since December 2017.
- Bitcoin is seen as a “safer” haven during a market decline.
- Rival coin ethereum is getting flushed by ICOs.
If you’re tracking the cryptocurrency market decline, you’ve probably noticed something strange. Altcoins are falling much harder than bitcoin.
Bitcoin, for example, has fallen 67% from its high last December, but ethereum is currently 84% lower than its all-time high. Ripple XRP is 91% lower.
Bitcoin dominance, meanwhile, has increased rapidly since May, almost touching 60% last week.
As prices decline, traders are moving money out of altcoins into bitcoin. What’s going on here?
What is Bitcoin Dominance?
Bitcoin dominance is the term used to describe bitcoin’s market capitalization compared to other cryptocurrencies.
In early 2017, bitcoin made up 87% of the total cryptocurrency market. It was the most dominant cryptocurrency, by far.
Bitcoin’s dominance was challenged throughout 2017 as altcoins grew in popularity. Ethereum threatened to catch up and even overtake bitcoin. In June 2017, bitcoin’s dominance fell to just 38%. Ethereum was at 31%.
That balance has now shifted back towards bitcoin. It currently stands at 55%.
Bitcoin Is the “Safe Haven” of Crypto
Think about the stock market for a moment. Whenever the stock market declines, investors take their money out of risky, speculative stocks and put it in “safer” places. They move money to big, stable companies that aren’t likely to get wiped out. Some move their money into safe assets like gold or the dollar.
The crypto market is the same. When people get spooked, they move their money into something more stable. Bitcoin.
While the average investor might not consider bitcoin “stable,” it is compared to altcoins.
Bitcoin Isn’t Going to Disappear
When the cryptocurrency market declines, there’s a real chance that some altcoins will plunge to zero. Bitcoin, however, is unlikely to disappear.
Track record – Bitcoin has a nine-year history and hasn’t disappeared yet. Investors know that bitcoin has weathered storms before and will probably do so again.
Name-recognition – 71% of Americans have heard of bitcoin. It’s now a small, but important, part of our culture.
Ingrained in the wider economy – Wall Street has opened the doors to bitcoin with the launch of bitcoin futures trading. We will shortly see an exchange-traded fund (ETF) and the entrance of more institutional investors. As bitcoin becomes more ingrained in the wider economy, it’s much less likely to disappear.
Gateway cryptocurrency – If you’re just getting into cryptocurrency, you’re probably going to buy bitcoin. Not just because it’s the largest coin, but because many exchanges require you to purchase bitcoin before buying other cryptocurrencies.
Bitcoin has a stability that other coins don’t. So when the market moves lower, people move their money into something that isn’t going to disappear.
There’s also one more reason why bitcoin dominance is growing:
Ethereum Tokens Are Getting Flushed
Ethereum experienced a wild ride to catch up with bitcoin in 2017. Much of that hype was created by new currencies launching on the Ethereum system.
When new currencies launch on Ethereum, they typically raise money through Initial Coin Offerings (ICOs). Investors use ETH to crowdfund these projects, hence the price of ETH rose.
Now, with millions raised in capital, those ICOs are dumping ETH on the open market, forcing the price down.
So while bitcoin enjoys some stability, ethereum is shedding value fast.
Bitcoin Dominance Pattern
When the cryptocurrency market is stormy, investors flock to bitcoin for some element of safety. In other words, bitcoin dominance is high when prices are low.
However, there’s another interesting correlation. Bitcoin dominance also hit a peak when the currency reached an all-time high in December.
So bitcoin dominance surges at both ends of the spectrum: when prices are low and when they are high.
Why? Well, when prices are high, the mainstream floods into the market. Because of name-recognition, they’re buying bitcoin at a much faster rate than ethereum or ripple.
It seems that altcoins have their moment during the quiet growth periods, while bitcoin dominance occurs at the extreme ends of the market. For now, let’s see if bitcoin will tip past the 60% mark.