The percentage of the overall cryptocurrency market value that Bitcoin holds is known as its dominance. Over the years, Bitcoin’s dominance has experienced fluctuations, influenced by various factors such as technological advancements, market sentiment, regulatory changes, and the emergence of altcoins. After its 2009 launch, bitcoin was the only digital asset, determining the cryptocurrency market’s total capitalization. Things changed slowly. In 2013, many new cryptocurrencies joined the market and increased in value. In 2015, Ethereum, Bitcoin’s closest rival, was founded, giving rise to the currency ether. In 2017, the ICO boom reduced BTC dominance to an all-time low, but it returned to above 50% in a couple of months. DeFi, NFT, metaverse tokens, and over 20,000 other cryptocurrencies challenge BTC the most.
In 2009, an anonymous developer or group of developers going by the name Satoshi Nakamoto released Bitcoin to the public. Even though other cryptocurrencies have emerged since then, bitcoin has maintained its position as the largest and most valuable of them all. Because of the core technology it uses, it has also spawned thousands of similar cryptocurrencies, known as altcoins.
Indicative of the health of the crypto market as a whole, Bitcoin’s position relative to other digital assets remains crucial. Traders and analysts use a ratio known as bitcoin dominance, or BTC dominance, to determine the extent to which bitcoin’s market cap exceeds that of the entire cryptocurrency market.
Define Bitcoin Dominance
Bitcoin’s (BTC) market share is proportional to the total value of all cryptocurrencies. To determine this ratio, take the overall cryptocurrency market cap and divide it by BTC’s market cap.
However, why does this matter? To determine if altcoins are rising or falling relative to Bitcoin, traders have traditionally looked at BTC dominance. If, for instance, altcoins are rising in value, this would suggest that a bull market is forming in the cryptocurrency market. In 2017, for example, a major fall in BTC dominance indicated rising altcoin prices (rather than a decline in the price of BTC) and the beginning of a bull phase for the entire market.
From a single cryptocurrency to thousands
Litecoin was the first alternative cryptocurrency to appear in 2011, and after 2013 (which Forbes magazine called “the year of the bitcoin”), the emergence of many more such currencies accelerated. There were at least ten tokens, such as Litecoin (LTC) and Ripple’s XRP, in circulation by May 2013.
At the same time, the value of Bitcoin was aiming upward as new investors entered the digital asset market. Although there were a few new entrants during this time, Bitcoin (BTC) nevertheless maintained a 95 percent market share.
Blockchain technology creator Vitalik Buterin and his team of coders introduced the Ethereum (ETH) network in 2015. Its goal was to compete with Bitcoin as a blockchain platform with more applicability than simple monetary transactions. Bitcoin, unmoved by competition from Ethereum’s native token, ether (ETH), maintained its dominance in the cryptocurrency market. In 2017, with the advent of the initial coin offering (ICO) excitement, things finally began to shift.
From 2017 to 2018, initial coin offerings (ICOs) rose to prominence as a preferred means of crowdfunding for nascent crypto companies. During this time frame, there were about 2,000 separate ICOs that raised over $10 billion combined. Many of the newer altcoins emerged at this time, and Bitcoin investors started pouring their money into them. Some investors put their faith in promising but unproven applications, while others looked to capitalize on wild price fluctuations.
Bitcoin’s market share had its first significant dip, to roughly 37% in January 2018, as a result of the enormous surge of altcoin competition.
The crypto-freezing of 2018
While the ICO explosion did get a lot of media coverage, it didn’t last. Investors saw that many ICO ventures had sketchy business models or other basic flaws. In certain cases, regulatory agencies in the United States and elsewhere began looking into the projects in question. Eventually, this wave of pessimism spread throughout the crypto market, causing prices across the board to drop and remain low for several months.
The Bitcoin Recovery
As the value of numerous altcoins dropped and investors became generally disappointed with initial coin offerings (ICOs), BTC’s share of the market gradually increased to over 50% by the year’s end.
By the end of 2019, the price of Bitcoin had recovered to over $7,000, with BTC dominance reaching a high of around 70% in September. However, the digital asset would be largely stable until the 2020 global COVID-19 pandemic.
Market for COVID
The cryptocurrency market would experience a historic bull run beginning in 2020, following a brief, COVID-filled decline. At the same time, BTC dominance would hit 72% in January 2021, its highest level since 2017, and then drop to 39% by mid-year.
With the coming epidemic, many people stayed home and engaged in day trading and investing to pass the time. Meanwhile, governments around the world made financial transfers to bolster their faltering economies in the wake of the pandemic. Many of these funds were first-time investments by retail traders in the stock, FX, or cryptocurrency markets.
After the second half of 2020, when the media started paying more attention to cryptocurrency, altcoins became an appealing, albeit dangerous, option for retail investors, especially newbies eager for quick gains. One example is the Shiba Inu (SHIB), whose value increased by more than 40,000,000% in 2021.
Further, bitcoin lost ground in the market because of the development of alternatives, such as Ethereum and Solana (SOL), that offer their own blockchains and innovations, such as decentralized finance (DeFI) and NFTs. For instance, in 2021, the price of Solana reached a record high of $250, up from a low of $1.50, due to rising demand for the underlying technology.
Since then, it has been difficult for BTC dominance to rise beyond the 50% mark. ETH 2.0, Ethereum’s long-awaited upgrade to proof-of-stake, and the prolonged bear market may have contributed to the recent slow growth of BTC dominance.
The rise of alternative cryptocurrencies in recent years has cut into Bitcoin’s market dominance. Bitcoin currently faces competition from thousands of different cryptocurrencies in addition to DeFi tokens and the rapidly growing NFT industry.
Bitcoin is still the largest cryptocurrency by market cap, and its position at the top is not going to change very soon. Firstly, due to its limited quantity, many investors view Bitcoin as a store of wealth, earning it the nickname “digital gold.”
The fact that Bitcoin was the first cryptocurrency gives it a significant advantage in the digital asset market. That first-mover advantage, though, won’t persist forever if a better option appears later. As of yet, no other cryptocurrency has come close to matching Bitcoin’s level of market dominance.