#27 The Dominator
Today we look at the macro view on Bitcoin Dominance
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What We Are Watching
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Cuba to regulate and recognize cryptocurrencies.
The first Bitcoin ATM that was designed and built in El Salvador.
For the first time ETH daily issuance lower than Bitcoin’s.
Hotel in Swiss Alps now accepts crypto payments.
Ethereum Name Service (ENS) now integrated with Domain Name Service (DNS).
Sam Bankman-Fried’s FTX lends $120m to recently hacked crypto exchange, Liquid.
Almost $1 billion was spent last month on NFTs.
The Macro View - Bitcoin Dominance
Bitcoin Dominance is the measure of the percentage of money invested in Bitcoin compared to all other cryptocurrencies. This is simply the Bitcoin market capitalization as a percentage of the total crypto market cap.
The Birth of Ethereum
The story doesn’t really start until July 30th, 2015 with the creation of Ethereum. It didn’t take long for wealthy individuals to be influenced by voices in (a lot from silicon valley) the software industry that Ethereum is going to be an important technology. Within two years of its creation the price of ETH was going parabolic. In the summer of 2017 ETH’s price rallied 1000% in just 3 months. This sent the total crypto market cap soaring and brought Bitcoin dominance down below 50%.
Some combination of profit taking and the rise of US retail buyers through Coinbase pushed Bitcoin dominance back up to nearly 75%. This was in the second half of the 2017 Bitcoin bull run where Bitcoin went parabolic. History shows that most bull runs have the majority of their upward price movement in the second half.
What was surprising was after Bitcoin peaked in December 2017 is when altcoins (Ethereum and XRP in particular) had their moment. It was something like a death throw of the crypto bull market. Very little new money was coming into Bitcoin and instead people were giving one last punt to any altcoin they could get their hands on. At this time Bitcoin dominance crashed from 75% to 35% in almost a single month. Many were convinced that Bitcoin’s time was over and altcoins were the future. It took only about a year and 9 months for Bitcoin to reclaim it’s dominance and travel back up to 75% from 35%. Over the same time period many altcoins lost 99% of their value.
From September 2019 until February 2020 (just before Covid lock downs were announced), Bitcoin dominance began to drift downward again. This may have been investors front running Bitcoin’s halvening when the new supply being distributed is cut in half. The last halvening was the catalyst for the 2016 - 2018 altcoin rally.
The Covid lockdowns gave Bitcoin dominance a small rally but it only lasted until summer of 2020, which many now refer to as DeFi summer. The yearn protocol was created in July 2020 and along with it a token (YFI) with a hard-capped supply. Investors can deposit stablecoins into yearn.finance’s vaults to earn passive yield on their deposits. The YFI token soared to $40,000 each in just a few months. This exuberance began to cast doubt on DeFi as just a fad that was over priced. Many of the DeFi tokens lost 60% to 80% of their value going into fall 2020. Simultaneously, Bitcoin caught a bid and by December 2020 Bitcoin Dominance was back to 75%.
The Present Moment
Bitcoin’s price really started running earlier this year and in just a few months went from $20,000 to $60,000. This rapid price rise brought new money into the crypto ecosystem as well as giving investors the green light to start buying altcoins. Bitcoin’s dominance once again fell to 39% (just 4% above the all time low in January 2018). Many tokens like ADA, BNB, UNI, rose 1000%+ and Dogecoin surprised many experienced crypto investors by rising 100,000%+ becoming a top 10 crypto.
The fall in all crypto prices over the summer has given Bitcoin Dominance a small upward trend. Looking back at the second half of the last Bitcoin bull run in 2016- 2018 it was in the second half of the rally that Bitcoin Dominance was rising. It is possible that we find ourselves in a similar situation. If Bitcoin’s price rallies into the remaining months of 2021 it’s possible Bitcoin Dominance rises with it. However, with the birth of NFTs, rapid expansion of DeFi, ETH2.0, and alternate chains like Solana and Avalanche just to name a couple, what chance does Bitcoin have to remain the dominator?
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