Ouch. After spending the past few weeks bothering both sides of the US$20,000 line, Bitcoin saw a 6% dip over the past day, dragging its exchange price back down to two-month lows of US$18,750 (as of September 7 14:35 BST).
While the bulls and bears battle it out and some intraday gains have been posted, one metric shows an unmistakable long-tail decline for the US$360bn digital currency.
At under 37.5%, Bitcoin’s market dominance is the lowest it’s been since April 2018.
The news didn’t pass economist and permabear Peter Schiff, who suggested that the explosion in “intrinsically worthless digital tokens, NFTs and crypto-related equities” are taking a toll on the world’s foremost digital asset.
Not only is #Bitcoin crashing, but its dominance has fallen to 38.1%, its lowest since June of 2018. Competing with almost 21,000 other intrinsically worthless digital tokens, NFTs and #crypto related equities is taking a toll. Even if Bitcoin is scarce, its alternatives are not.— Peter Schiff (@PeterSchiff) September 6, 2022
The metric measures Bitcoin’s market capitalisation against the market capitalisation of the entire cryptocurrency market.
Although this region was tested earlier this year, the charts point to a more sustained trend rather than a weekly fluctuation, signalling Bitcoin’s reduced market dominance overall.
Bitcoin’s market dominance has fluctuated over time, but has shown a sustained fall in recent months – Source: messari.io
While technical indicators can be twisted and turned to fit almost any sentiment (astrology for the markets, some say), market dominance gives some strong indications as to where traders are putting their money.
Year to date, the two largest stablecoins – digital assets pegged to the US Dollar – namely Tether (USDT) and USD Coin (USDC), have increased their market dominance by 86% and a massive 328% respectively, and now comprise 6.7% and 5.1% of the entire market respectively.
Notably, the two stablecoins continued to increase in popularity even when the collapse of TerraUSD caused widespread panic and subsequent scepticism in the market.
Binance’s BUSD stablecoin has also increased its market dominance by 209%.
This could be a sign that Bitcoin’s reputation as a hedge against volatility has been damaged, as traders move their positions to stablecoin assets which are, funnily enough, meant to be more stable.
But there’s more to the story than that.
Is it altcoin season?
Ethereum (ETH)’s market dominance is riding high at close to 20%, having sustained above 17% for the majority of 2021 and 2022.
ETH's market dominance has shot up in lead up to The Merge – Source: messari.io
Since mid-July alone the second-largest cryptocurrency by market cap has increased its dominance by 36%.
Much of this is undoubtedly due to positive investor sentiment in the lead up to The Merge, Ethereum’s landmark protocol upgrade due to happen in a matter of days.
As for the rest of the major altcoins, a trendline is not so clear.
Cardano’s dominance saw a recent bump yet has remained fairly flat while Solano has varied wildly.
Polygon has increased its market dominance by around 76%, though its total value is only slightly above 0.75% of the total crypto market.
So is it altcoin season? Well, it might be more accurate to call it Ethereum season, though what happens after The Merge is still up in the air.
Will Etherum continue to eat away at Bitcoin’s market dominance or will traders end up selling the rumour after buying the news?
We’ll soon find out.
Read more on Proactive Investors AU
