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Bitcoin dominance: when to expect altcoin season


The crypto market has shown a strong start to 2023 - let's look at some key factors to help determine if the momentum is sustainable.

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Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade.

Since its launch in 2009, Bitcoin has dominated the crypto market. It has grown to become a mainstream asset class that attracts a wide variety of investors and turns over billions of dollars in daily trading volume.

However, over the past few years, many other digital assets, known as altcoins, have emerged and gained significant popularity, eating away at Bitcoin's share of the total crypto marketcap – otherwise known as Bitcoin dominance.

This was witnessed at the highest degree during the 2021-2022 bull run when many coins and tokens rallied upwards of 1,000%. While BTC made new highs during this time, its returns were far less, causing a drastic drop in its dominance percentage.

The question on many people's minds is when will altcoins once again have their moment in the sun?

This article will explore the concept of Bitcoin dominance, its role in market cycles and the factors that could help indicate the dawn of a new altcoin season.

Identifying market cycles

While markets are viewed by many as moving up or down - bullish or bearish - they often move in distinct long-term phases, known as cycles.

Market cycles are characterised by 4 phases – accumulation, markup, distribution and markdown.

While there's no fixed or definitive timeline, the patterns typically remain the same. Identifying these patterns can help you enter during an accumulation or markup phase and amplify your long-term profit potential.

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Image: BTC market cycles | Source: TradingView Image: Supplied

Although price cycles are a result of money flowing in and out of the market, these fluctuations are primarily driven by market psychology – fear, greed and cognitive biases.

Market psychology plays an important role in identifying entries and exits and is explained in depth in the Binance Academy article - The Psychology of Market Cycles.

Bitcoin dominance on the rise

Bitcoin dominance is a key metric used by investors to help determine where we are in the market cycle and plan entries and exits accordingly.

This percentage value is calculated as follows:

BTC marketcap / Total crypto marketcap * 100

At the time of writing, the combined marketcap of all cryptocurrencies is US $1.15 trillion, while Bitcoin's marketcap is US $530.5 billion.

This means that Bitcoin's dominance is currently sitting at 47.28%.

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Image: BTC dominance 43.8% | Source: TradingView
Image: Supplied

By monitoring Bitcoin's dominance percentage, investors can gain insight into market trends and identify potential opportunities.

In the past, traders have used this metric to help identify when money is flowing out of Bitcoin and into lower marketcap trading pairs. Recognising this change allowed these savvy investors to diversify their portfolios at the right time and gain early entry to altcoin season and the high returns that followed.

Binance Guide: What Is Binance BTCDOM Index

Altcoin season: How to plan your investments

In the past, altcoin season has come in various trends, including DeFi summer, the NFT boom and the Metaverse hype.

While the coins and tokens may differ each cycle, altcoins season is typically characterised by a significant drop in Bitcoin's dominance percentage and the rallying of lower marketcap trading pairs.

We spoke to Liam O'Doherty from Binance Australia to get his thoughts on where we are in the current market cycle and what Bitcoin's current dominance of 47.28% might mean moving into the second quarter of 2023.

"When markets rally, major traders will look for better returns than Bitcoin (BTC). During these periods, they'll often trade between BTC and altcoins (instead of fiat or stablecoins) to take advantage of the overall market movement. When BTC rallies, a rally in altcoins often follows as traders use new profits to seek further gains in alts."

While it's impossible to predict the exact timing of the next altcoin season, Liam raises a good point. After a shaky 2022, Bitcoin has shown strength in the early stages of 2023.

The 'king of crypto' has gained about 10% in the past 2 months, leading to a rise in its dominance percentage, with many traders turning to Binance to utilise the platform's zero spot trading fees across 13 Bitcoin spot pairs.

Although BTC has a long way to go before reaching its previous all-time highs, investors who purchased at 2022 lows may look to take profits and diversify into lower marketcap altcoins.

This diversification was witnessed during the 2021 bull run when altcoins such as BNB (the native coin of Binance exchange and BNB Chain) saw exponential growth. Over the course of about 6 months, BNB gained 2,442% while BTC rose 284%.

It's important to remember that past performance is not an indication of future returns.

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Image 2021 bull run - BTC vs BNB | Source: TradingView
Image: Supplied

During the 2021 altcoin season, Bitcoin's dominance percentage dropped below 40% as profits were taken and investors diversified their portfolios into high-performing alternatives.

Piecing the puzzle together

While understanding market cycles and tracking Bitcoin dominance can help you identify when an altcoin season is approaching, it's also important to watch the development progress and roadmap of some of your favourite projects.

Liam from Binance agreed that the crypto space can be overwhelming and full of speculation. It's probably best to stay away from speculative and high-risk investments and focus on the fundamentals.

"To see a true alt season, you want to see a surge in development of tech."

Projects that are reaching their goals and helping to push the limits of blockchain technology are the ones that will most likely perform well over the long term.

There's no set formula for predicting or trading the market – it's crucial to do your own research (DYOR) and consider your risk appetite before investing. Always follow a trading or investment plan and conduct due diligence in research through reputable sources such as Binance Academy.

Marketcap vs price: thinking about when to buy

One of the most important metrics to consider when planning your crypto investments is market capitalisation or simply marketcap.

Marketcap refers to the total valuation of a cryptocurrency project. This value can be calculated by multiplying the price of an asset by its circulating supply of tokens or coins.

For example, a project with 1 million tokens worth $10 each has the same marketcap as a project with 10 million tokens worth $1 each.

Not understanding this can lead beginner investors to purchase cryptos based on their token price or because it's 'cheap' compared to the price of one Bitcoin.

Some low-priced cryptos, such as Shiba Inu (SHIB) and Dogecoin (DOGE), are highly valued, with multi-billion dollar marketcaps. However, expecting these to reach a price of $10 per token is extremely unlikely and would lead to a total marketcap in the trillions – much higher than Bitcoin.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

Disclosure: The author owns a range of cryptocurrencies at the time of writing

Image: Getty

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