Bitcoin (BTC) is regaining its lost dominance in the cryptocurrency market, even as it trades almost 60% below its all-time highs.
Bitcoin dominance is at 6-month highs
The Bitcoin Market Dominance Index (BTC.D), a metric that weights BTC’s market capitalization against the rest of the cryptocurrency market, jumped to around 47% on May 27, its highest since October 2021.
The Dominance Index swelled despite the drop in Bitcoin’s market capitalization over the past six months, from $1.3 trillion in November 2021 to almost $550 billion in May 2022, suggesting that traders feel more comfortable selling altcoins.
Let’s look at three likely reasons why traders have been rotating out of the altcoin market to seek safety in Bitcoin.
The Ethereum “Merger” Narrative is Cooling
Ethereum’s native token, Ether (ETH), the largest alternative cryptocurrency by market cap, has seen steady declines in its market dominance over the past five months: from 22.38% in December 2021 to 17.86% in May 2021. 2022.
The decline comes after two years of a sustained uptrend, with the ETH/BTC pair rising more than 200% between September 2019 and December 2021.
As Cointelegraph reported, andther outperformed bitcoin in recent yearslargely due to the hype around its long-awaited protocol upgrade, called “The Merge,” which it hopes will make Ethereum more scalable and less expensive.
However, the upgrade, which aims to move the Ethereum blockchain from proof-of-work to proof-of-stake – a chain known as the Beacon Chain – has seen repeated delays in its release.
Recently, Martin Köppelmann, co-founder of the Ethereum Virtual Machine (EVM)-compatible Gnosis chain, highlighted a reorganization of seven blocks in the Beacon Chain, meaning the chain was briefly “forked” in its testing phase.
The Ethereum beacon chain experienced a 7-block deep reorg ~2.5h ago. This shows that the current attestation strategy of nodes should be reconsidered to hopefully result in a more stable chain! (proposals already exist) pic.twitter.com/BkQrKuUlw1
— Martin Köppelmann (@koeppelmann) May 25, 2022
The Ethereum Beacon Chain underwent a deep 7-block reorganization about 2.5 hours ago. This shows that the current node certification strategy needs to be reconsidered to hopefully result in a more stable chain! (There are already proposals)
Ether fell almost 13.5% against the US dollar following the revelation on May 25, while the ETH/BTC pair fell to 0.059, the lowest level in six months.
Ethereum lacks narratives to drive ETH price higher after undergoing the Merge upgrade, noted OxHamZ, an independent market analyst, saying that investors have already “priced in” on the network upgrade hype.
What’s the narrative to own ETH after the merge?
All KPIs are down
Active wallets stagnant
NFT hype dead
LP trading volumes trending poorly
Liquidity shrink in stables
L2 cannibalization growing (h/t @TaschaLabs)ETH is down 50% but the value of its block-space is also down
— 0xHamZ (@0xHamz) May 25, 2022
What is the narrative for owning ETH after the Merge?
All KPIs are down
Active wallets have stalled
The NFT hype is dead
LP trading volumes tend to be poor
Decrease in liquidity in the stables
L2 cannibalization on the rise (h/t @TaschaLabs)ETH is down 50% but the value of its block space is also down
MOON at 0
The renewed strength of the Bitcoin crypto market also appears due to the collapse of the Terra (LUNA) market.
The LUNA/BTC pair, a financial instrument that tracks the strength of the Terra token against Bitcoin, fell 99.99% to 0.00000004 in May, rendering it virtually worthless.
Meanwhile, LUNA similarly fell against the dollar, raising expectations that traders would dump the token to seek safety in BTC and cash.
LUNA’s market capitalization before the deadly crash in May was $40.88 billion.
altseason is dead
Overall, the altcoin market, which contains everything from large-cap blockchain projects to sketchy crypto assets, is down nearly 65% six months after topping $1.7 trillion.
A deeper look at some tokens shows that, unlike Bitcoin, most are down more than 80% from their all-time highs, suggesting a general investor outflow from altcoins and into cash, stablecoins or BTC.
This is mainly because Bitcoin is not only the oldest blockchain, but it stands on its own without any central authority.
No one controls the #bitcoin network.
— CZ Binance (@cz_binance) May 26, 2022
No one controls the #bitcoin network.
Historically, Bitcoin dominance drops during crypto bull markets as waves of new tokens surge during the mania phase.
For example, the duration of the infamous initial coin offering (ICO) hype coincided with BTC.D dropping from nearly 96% in January 2017 to 35% in January 2018.
So, the March 2020 crash was the start of the DeFi and non-fungible token (NFT) hype, fueled further by Fed quantitative easing.
So, if Bitcoin market dominance has indeed bottomed out, it could again align with a macrobottom in Bitcoin price, and possibly the start of a new bull market phase in the coming months.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you must conduct your own research when making a decision.
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