Bitcoin (BTC) is regaining lost crypto market dominance despite trading around 60% below record levels.
Bitcoin dominance at 6-month high
The Bitcoin Market Dominance (BTC.D) index, a metric that evaluates the market capitalization of BTC against the rest of the cryptocurrency market, jumped to nearly 47% on May 27, its highest level since October 2021.
The dominance index rose from $1.3 trillion in November 2021 to nearly $550 billion in May 2022 despite the decline in Bitcoin’s market value over the past six months, suggesting that traders are more comfortable selling altcoins.
Let’s look at three possible reasons why traders are exiting the altcoin market to seek security in Bitcoin.
Ethereum “Merge” narrative cools
The largest alternative cryptocurrency by market cap, Ethereum’s native token Ether (ETH) has witnessed consistent drops in market dominance over the past five months, from 22.38% in December 2021 to 17.86% in May 2022.
After two years of continuous uptrend, it has been bearish, with ETH/BTC rising more than 200% between September 2019 and December 2021.
As Cointelegraph reported, Ether has outperformed Bitcoin in recent years, largely due to the hype surrounding the long-awaited protocol upgrade called “Merge”, which hopes to make Ethereum more scalable and cheaper.
But the upgrade, which aims to switch Ethereum’s blockchain from proof-of-work to proof-of-stake (a counterpart known as the Beacon Chain), has faced repeated delays at launch.
Recently, Martin Köppelmann, co-founder of the Ethereum Virtual Machine- (EVM) compatible Gnosis chain, highlighted a seven-block restructuring of the Beacon Chain, which means that the chain is “forked” in short.“It’s in the testing phase.
The Ethereum token chain experienced a 7-block deep reorganization ~2.5 hours ago. This indicates that the current validation strategy of nodes needs to be reconsidered to result in a more stable chain! (suggestions already exist) pic.twitter.com/BkQrKuUlw1
— Martin Köppelmann (@koeppelmann) 25 May 2022
After the May 25 announcement, Ether dropped nearly 13.5% against the US dollar, while ETH/BTC dropped to a six-month low of 0.059.
OxHamZ, an independent market analyst, said that Ethereum lacks narratives to push the price of ETH up after the Merge upgrade, and that investors have already “priced in” the network upgrade hype.
What is the narrative of owning ETH after merger?
All KPIs dropped
Active wallets are stagnant
NFT hype is dead
LP trading volumes are weak
Shortage of liquidity in the stables
L2 cannibalistic growth (h/t @TaschaLabs)
ETH is down 50% but the value of the block area has also decreased
— 0xHamZ (@0xHamz) 25 May 2022
LUNA to zero
Bitcoin’s renewed crypto market strength is also emerging due to the collapse of the Terra (LUNA) market.
LUNA/BTC, a financial instrument that tracks the strength of the Terra token against Bitcoin, fell 99.99% to 0.00000004 in May, making it nearly worthless.
Meanwhile, LUNA has similarly dropped against the dollar, raising expectations that traders are abandoning the token to seek safety in BTC and cash.
LUNA’s market value before the fatal crash in May was $40.88 billion.
Related: Crypto funds under management plunge to a low not seen since July 2021
at the bottom
Overall, the altcoin market, which includes everything from major blockchain projects to sketchy crypto assets, has dropped nearly 65% six months after hitting $1.7 trillion.
A closer look at some of the tokens shows that unlike Bitcoin, most of them are down more than 80% from their all-time highs, implying a general investor’s exit from altcoins to cash, stablecoins or BTC.
This is mainly because Bitcoin is not only the oldest blockchain, but also stands on its own without any central authority.
no one controls #bitcoins network.
— CZ Binance (@cz_binance) 26 May 2022
Historically, Bitcoin’s dominance falls during crypto bull markets as waves of new coins emerge during the mania phase.
For example, the duration of the infamous initial coin supply (ICO) pump coincided with BTC.D’s decline from around 96% in January 2017 to 35% in January 2018.
Then, the March 2020 crash marked the beginning of DeFi and invincible token (NFT) hype, further bolstered by the Federal Reserve’s quantitative easing.
Therefore, if Bitcoin’s market dominance has truly bottomed out, once again It’s a macro bottom in Bitcoin price and possibly the start of a new bull market phase in the coming months.
The views and opinions expressed here are those of the author alone and may not necessarily reflect those of Cointelegraph.com. Every investment and trading move involves risk, you should do your own research when making a decision.