Bitcoin’s recent dominance in the cryptocurrency market has fallen below 50%, indicating a potential headwind as retail activity increases. This change raises doubts about market dynamics and investor sentiment.
Bitcoin dominance has been a critical indicator of whether the market is in a bullish or bearish cycle throughout history. As Bitcoin’s dominance is growing, typically this means a defensive market where investors would prefer the relatively safer alternative of Bitcoin instead of altcoins.
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Although a drop usually means that the investor is likely to increase their risk and often prefers to invest in altcoins for possible higher returns.
Crypto analyst Alan Santana identified three significant warning signs for Bitcoin dominance in an X post on Tuesday as retail investors resumed trading after a long period of inactivity.
#BTCdominance 🅱️ 3 Bearish Bitcoin Dominance Signals + Fibonacci Timing Calculations
I would like to show here mainly three signals that can be considered bearish on this chart, Bitcoin Dominance (BTC.D).
1) There is a Doji on September 16th. Coming on top of a trend… pic.twitter.com/enQAeVo5MB
-Alan Santana (@lamatrades1111) October 21, 2024
Increased retail activity
As Bitcoin’s supremacy declines, retail investors have become increasingly active. Typically, this increase in retail involvement comes with a decline in Bitcoin’s market share, as these investors shift to altcoins in search of better profits.
The current situation is reminiscent of previous cycles, during which increased retail interest resulted in a substantial decrease in The dominance of Bitcoin. For example, Bitcoin’s dominance declined significantly during the 2021 bull market as new altcoins gained momentum, drawing attention away from the original cryptocurrency.
General change in investor mood
Market experts say this trend doesn’t just happen once; it’s a sign of bigger changes in the way investors act. As non-fungible tokens (NFTs) and decentralized finance (DeFi) have grown, altcoins have become more attractive.
Many investors think that networks like Ethereum, which support smart contracts and decentralized applications, are more flexible than Bitcoin currently. This shift could be a sign of a larger shift in the way people think about and use cryptocurrencies.
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Fluctuation Trends
Bitcoin has seen a trend of fluctuations in dominance since its inception in 2009. Starting with a market share of almost 100%, it began to slowly decline with the introduction of more altcoins.
Bitcoin crucially fell between the ICO boom of 2017 and the DeFi rise of 2021, when it fell below 40% dominance. Given these historical precedents, this could represent another phase in which altcoins outperform Bitcoin, especially as retail interest is growing.
Experts believe this could cause crypto markets to become even more volatile in the future if this continues. Declines in dominance are often precursors to speculative trading, which subsequently causes Bitcoin and altcoin prices to fluctuate wildly.
Bitcoin’s current level of dominance acts as an indicator of overall market sentiment. Many speculators are reevaluating their strategies as the market continues to decline.
Featured image using Dall.E, TradingView chart