Source: MarsBit
Bitcoin's market share (BTC Dominance) has continued to rise, reaching a peak of 59.92% today, refreshing a high not seen since March 2021. This trend not only reflects Bitcoin's strong return as digital gold but also reveals mainstream capital's preference for its hedging properties in the context of increasing global economic uncertainty. Meanwhile, the soft performance of the altcoin market, especially the continued decline of Ether/Bitcoin, has continuously compressed its market share, casting a shadow over the future potential of the market.
Historically, the crypto market often exhibits the characteristic of 'Bitcoin-altcoin rotation': in the early stages of a bull market, Bitcoin attracts investors' attention with its steady growth rate, and as market sentiment rises and risk appetite warms, altcoins will experience explosive growth. Behind this phenomenon are the influences of market capital flow patterns and the fluctuations of investor sentiment.
This article will delve into several core topics in order to provide readers with a comprehensive market perspective:
Changes in Bitcoin's market share and altcoin market capitalization during historical bull markets;
The internal reasons for the current rise in Bitcoin's market share and possible turning points;
The deeper factors behind the decline in altcoin market share;
And the potential and layout opportunities of the altcoin market in the future.
Through a multidimensional analysis, we will reveal the current structure of the crypto market and the future development trends, guiding investors in the right direction.
Changes in Bitcoin's market share and altcoin market capitalization during historical bull markets
From the historical bull markets of cryptocurrencies, each upward cycle follows a clear 'Bitcoin-altcoin rotation' trend. Specifically, bull markets typically begin with Bitcoin leading, with its market share initially rising, followed by altcoins rising and even surpassing Bitcoin's performance. This rotation phenomenon is driven by market capital flow patterns and is also influenced by changes in investor sentiment.
Source: MarsBit Top 10 cryptocurrencies by market capitalization in the 2013 bull market
Before this bull market, Bitcoin's market share reached 100%, as investors essentially only purchased Bitcoin. In 2013, the price of Bitcoin skyrocketed from about $13 at the beginning of the year to $1,000 by the end of the year, with its market cap increasing from about $130 million to $12 billion. At the same time, as Bitcoin's price surged, investors' risk appetite gradually increased, leading to attention for altcoins like Litecoin ($LTC) and $XRP, which drove altcoin market capitalization from a few million dollars at the beginning of the year to nearly $2 billion. During this phase, Bitcoin's market share fell to around 90%, symbolizing a reevaluation of risk assets by investors.
Source: MarsBit Top 10 cryptocurrencies by market capitalization in the 2017 bull market
2017 was a key year for the rise of altcoins. Bitcoin's price started at around $1,000 and approached $20,000 by the end of the year. At this time, Bitcoin's market share was about 80% when the bull market kicked off, but with the surge of ICOs, the altcoin market received a considerable influx of funds. Projects like Ethereum ($ETH) and Bitcoin Cash ($BCH) saw explosive growth in market capitalization this year: Ethereum surged from less than $1 to a peak of $1,500, and numerous altcoins led to Bitcoin's market share dropping to about 35% by year-end. This phenomenon reflects investors' enthusiasm for the diverse applications of blockchain technology and the pursuit of emerging projects.
Source: MarsBit Top 10 cryptocurrencies by market capitalization in the 2021 bull market
Entering the second half of 2020, with the increasing global recognition of Bitcoin as 'digital gold,' the price quickly rose from about $10,000 to $64,800, and Bitcoin's market share approached 73%. With the explosion of emerging markets like DeFi, NFTs, and GameFi, Bitcoin's market share fell to around 39% in the latter half of this bull market. During this phase, Ethereum, with its leading position in the DeFi sector, saw its market capitalization exceed $200 billion in the first quarter of 2021. At the same time, Solana ($SOL) and Binance Coin ($BNB) also performed remarkably, with Solana's market cap rising from $20 million at the beginning of 2021 to $80 billion, and $BNB growing from about $15 billion to nearly $80 billion, further diversifying the market structure.
In summary, historical data indicates that crypto bull markets often experience a rotation from Bitcoin dominance to altcoin momentum. In this process, Bitcoin attracts a large amount of mainstream capital due to its anti-inflation characteristics, scarcity, and market recognition as a digital asset, driving its market share to continually rise. However, as the market reaches high levels, investors' risk appetite gradually increases, leading to accelerated inflow of funds into altcoins and growth in market capitalization, thus promoting market activity and innovation.
The reasons for the current rise in Bitcoin's market share
The rise in Bitcoin's market share is not an isolated phenomenon but a result driven by multiple factors.
Preferences of mainstream capital
The global overall economic environment in 2024 is filled with uncertainty. The Federal Reserve's interest rate hike policy and inflation issues have prompted traditional capital to flow toward assets with hedging properties. Bitcoin, as 'digital gold,' is gradually becoming a safe haven for mainstream capital, while altcoins, being relatively riskier, are losing their appeal.
ETF and institutional entry
ETF-related benefits are a significant driving force behind the rise in Bitcoin's market share. The approval of ETFs has brought in substantial institutional capital, which generally favors the relatively stable Bitcoin. At the same time, major publicly traded companies in global capital markets, such as MicroStrategy and Metaplanet, have included Bitcoin in their balance sheets, continuously purchasing Bitcoin. Recently, Microsoft shareholders have also proposed incorporating Bitcoin as a diversified investment, further catalyzing the demand for Bitcoin, leading to a short-term increase in market share.
Bitcoin halving and changes in market liquidity structure
On April 19, 2024, Bitcoin completed its fourth halving, reducing the mining reward from 6.25 bitcoins to 3.125 bitcoins. At the same time, Bitcoin's hash rate reached 769.8 EH/s, setting a new historical high. Bitcoin's supply is decreasing while demand is increasing, which fundamentally distinguishes it from other altcoins.
Additionally, with the increase of institutional capital, the liquidity structure of the crypto market is also changing, with Bitcoin's trading volume and market depth significantly improving. This change reflects a structural adjustment in the market. The basic economic principle of supply and demand, coupled with capital shifting towards low-volatility assets, leads to an increase in Bitcoin's price and market share.
The fundamental reasons for the decline in altcoin market share
The decline in altcoin market share is not only a reverse result of Bitcoin's rise but also reflects the multiple influences of market dynamics, technological development, and overall economic factors at a deeper level. Here are some important reasons:
Market trust crisis
In recent years, frequent security vulnerabilities and funding issues in altcoin projects, such as DeFi protocols being hacked and multiple projects collapsing, have severely damaged investor trust. Recently, the decentralized cross-chain lending protocol Radiant Capital suffered a hacker attack resulting in a loss of $55 million, and its token RDNT plummeted by 40%, with a decline of up to 88% over the past six months.
Especially in an environment where regulation is not yet sound, these issues have led investors, particularly institutional capital, to develop deep skepticism toward altcoin projects.
Market concentration is rising
As leading assets like Bitcoin and Ethereum maintain their strength, their share of the total market capitalization continually increases. This trend of concentration compresses the market cap and influence of smaller altcoins, further weakening their voice and competitiveness in the market. Many investors are beginning to concentrate their funds on these more well-known and relatively safe assets.
Lack of clear valuation basis
Altcoin projects often lack stable profit models, leading to highly uncertain valuations. In a fiercely competitive market environment, especially with pressure on application layer projects like Ethereum becoming increasingly evident, investors' expectations for medium to long-term returns are continuously declining, further dampening the enthusiasm for investing in altcoins.
At the same time, many projects supported by venture capital (VC) appear overvalued once they list on exchanges. These tokens often merely serve as transaction fees within the ecosystem and do not participate in governance or reward mechanisms, resulting in limited demand and market performance failing to support their high valuations. Additionally, after listing on exchanges, the circulation rates of altcoins are extremely low, further exacerbating market fragility. Facing chips held by early investors at very low prices, the market inevitably falls into a continuous decline, gradually undermining investor confidence. This situation not only reflects the trust crisis among investors regarding altcoins but also reveals the current fragility of the market ecosystem.
Changes in investor behavior
The market has experienced multiple rounds of bull and bear cycles, with investors' risk appetites changing accordingly. After a series of market fluctuations, many investors have gradually leaned towards conservatism, preferring to select assets with higher liquidity and lower volatility. This psychological shift has made investments in altcoins increasingly cautious.
Since the mainstream emergence of altcoins in 2017, retail investors have experienced three rounds of massive losses. Between 2020 and 2021, innovations in DeFi and NFTs attracted a large number of retail investors, but were followed by enormous losses. Today, the third round dominated by meme coins has led many investors to doubt the future of cryptocurrencies and even to mock this technology, seeing it as merely an honest bubble gambling arena rather than a truly disruptive technology.
This change not only reflects the complexity of the market environment but also reveals investors' vulnerability and anxiety when facing highly volatile markets.
Technological iteration lag
Although new altcoins are emerging one after another, many projects have not kept pace with industry developments in terms of technological iteration and innovation. Compared to mature projects like Bitcoin and Ethereum, these altcoins lack sufficient technological innovation support, resulting in a continuous decline in their market competitiveness. Some older altcoins, like Ripple ($XRP), seem technologically outdated in the face of the rapid development of Ethereum and other emerging platforms (like Solana), making it difficult to attract new developers and projects. Although $XRP has some application in the payment industry, it is at a disadvantage in terms of smart contracts and decentralized applications (DApps).
Increased compliance pressure and regulatory uncertainty
As the cryptocurrency market gradually comes under the scrutiny of regulators, new regulations and policies may have a significant impact on the altcoin market.
In May 2024, the United States passed an important cryptocurrency regulatory bill – the Financial Innovation and Technology Act of the 21st Century (FIT21). This legislation aims to establish a clearer regulatory framework for crypto assets. It also requires crypto intermediaries to comply with anti-money laundering regulations and the Bank Secrecy Act, meaning that altcoin projects may face more compliance pressures during financing and trading. Although this regulation aims to protect investors, the uncertain policy environment has also made investors worried about the future of altcoins, thereby reducing overall market investment confidence.
Changes in altcoin market capitalization and future potential
Source: MarsBit
Despite the decline in altcoin market share, their market capitalization has not stopped growing. According to TradeView data, the current total market capitalization of altcoins is $94.76 billion, having risen over 20% in the past month and grown over 66% in the past year. Meanwhile, since the beginning of this year, risk investments in the crypto market have exceeded $8.5 billion, a year-on-year increase of over 11%. This fully demonstrates that the growth of global blockchain application demand and technological innovation will continue to bring market value to altcoins.
Development of DeFi, RWA, and DePin
With continuous innovations in industries like DeFi, altcoins still hold a relatively high market position in these sectors. Particularly driven by the enhanced scalability of Ethereum, the increase in on-chain financial application scenarios will bring more opportunities for market capitalization growth for altcoins. With the rise of emerging tracks like real-world assets (RWA) and decentralized physical infrastructure (Depin), these tracks tokenize traditional assets and share resources, bringing new liquidity and investment opportunities to the market, further enhancing the investment outlook for altcoins.
The popularity of Layer 2 solutions and cryptocurrency payments
Layer 2 solutions have shown significant performance in reducing transaction costs and improving efficiency. Ecosystems like Arbitrum and Optimism are rapidly expanding their functionalities, attracting a large number of users and capital, thus bringing incremental value to related projects. These technologies not only enhance user experience but also provide more efficient support for altcoin payment functionalities, making small payments and cross-border transactions more convenient and economical. This trend will help further promote the popularity and application of altcoins.
Project innovation and market demand matching
Some altcoin projects focus on vertically segmented markets, enhancing their competitive advantages in specific industries. With the implementation of the metaverse and other blockchain innovations, related projects have significant potential for market capitalization growth.
Is it worth allocating to altcoins now?
Historical changes in altcoins
Source: MarsBit
In exploring the allocation of altcoins, it is essential first to clarify the types of altcoins we choose. According to the latest data from CoinMarketCap, the top ten cryptocurrencies by market capitalization are Bitcoin ($BTC), Ethereum ($ETH), Tether ($USDT), Binance Coin ($BNB), Solana ($SOL), USD Coin ($USDC), Ripple ($XRP), Dogecoin ($DOGE), TRON ($TRX), and $TON.
However, looking back at history, we find that although Bitcoin ($BTC) has always remained at the top during four rounds of bull markets, Ripple ($XRP) and Ethereum ($ETH) have also participated in this feast multiple times. In stark contrast, early bull market projects like Litecoin, Monero, Ethereum Classic, and Dash, each with their glorious history, were eventually forgotten in the long river of blockchain. The dramatic changes in this ranking make me ponder the evolution of the crypto market.
This data not only highlights Bitcoin's solid position as the market 'leader' but also reveals the volatility and complexity of the altcoin market. Each reshuffling of market capitalization is like a 'tide' in the cryptocurrency market, witnessing the interplay of changes in investor psychology and technological innovation. Altcoins, although rapidly rising at certain stages due to new technologies and market demands, attract substantial capital, but the accompanying high risks should not be underestimated. Those projects that seem glamorous in the short term often dim quickly during market fluctuations, leaving investors feeling as if they have been swallowed up by despair in an instant.
Therefore, faced with such a market, we need to analyze the fundamentals and development potential of altcoins with a more rigorous attitude, paying attention to the underlying technological strength and actual application scenarios.
Analysis of Bitcoin's market share chart
Whether it is suitable to allocate to altcoins at present needs to be considered in conjunction with Bitcoin's market share, market sentiment, and the overall economic environment. According to the historical patterns of Bitcoin's market share, when its share is between 60% and 65%, altcoin market capitalization is expected to see a phase of recovery.
This is because Bitcoin's 'capital-gathering effect' is gradually reaching its peak, leading investors to refocus on high-yield altcoins. Meanwhile, as the market becomes saturated and positive factors are realized, the market's risk appetite is expected to rebound, thereby driving the recovery of altcoin market share.
Interest rate cuts
This bull market exhibits significant similarities to the previous one in terms of interest rate policy. In both cycles, the Federal Reserve has gone through a transition from long-term interest rate hikes to cuts. Rate cuts are typically accompanied by an increase in liquidity, prompting investors to adopt higher-risk investment strategies, which is precisely the driving force behind the growth of altcoins.
For example, in July 2019, the Federal Reserve implemented its first interest rate cut in nearly a decade, after which Bitcoin's market dominance soared to 70%, while the total market capitalization of altcoins was less than $60 billion at that time. As liquidity flowed into high-risk assets, the rise of decentralized finance propelled strong growth in altcoins, with market capitalization skyrocketing to $228 billion by the end of 2020 and reaching a historical high of $1.7 trillion in November 2021.
Are we on the brink of a new round of altcoin prosperity? This possibility indeed exists. Although Bitcoin's dominance seems poised to break above 60% again, this does not necessarily indicate bad news; on the contrary, it is a positive signal for altcoins. The healthy growth of altcoins often relies on Bitcoin’s strong performance.
It is expected that the interest rate cut in September 2024 will create an environment similar to that of 2019 for the market. Although Bitcoin's dominance may still be maintained in the short term, the foundation for a rebound in altcoins is gradually taking shape. If the model of 2019 is followed, altcoins are expected to gain momentum for development before the end of the year, and if liquidity continues to increase, they may run alongside Bitcoin by 2025.
Of course, managing investment expectations is crucial. Although Bitcoin may continue to outperform altcoins in the foreseeable future, it is undeniable that the conditions for altcoins to rebound are gradually taking shape.
Conclusion
Currently, behind the new highs in Bitcoin's market share lies a reflection of the gradual shift in market risk appetite and mainstream capital's pursuit of Bitcoin as digital gold. Although the short-term performance of altcoins is poor, potential opportunities still exist under the new market demands and technological backdrop. Therefore, for investors, it is essential to analyze market dynamics rationally and seize potential future investment opportunities.
Disclaimer: This article does not constitute investment advice, and users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances and comply with relevant laws and regulations in their respective countries and regions.
This article is authorized to be reproduced from: (MarsBit)
Original author: Alvis, Mars Finance
