The Altcoin Dominance Explained
Published on August 5th, 2023
Whether you're a seasoned crypto enthusiast or a newcomer dipping your toes into the blockchain waters, understanding the rising wave of altcoin dominance could be the game-changer in your digital asset strategy – let's break it down together.
The Altcoin Dominance is an interesting indicator or tool which can be used to gain valuable insights. Those who are new may be wondering what pertains to the Altcoin Dominance.
The Altcoin dominance refers to the proportion of the total cryptocurrency market cap (the combined value of all cryptocurrencies) that is composed of alternative cryptocurrencies (altcoins), essentially anything that isn't Bitcoin. The term 'dominance' is used to illustrate which cryptocurrencies hold the most sway or influence over the market, typically measured as a percentage. When altcoin dominance is high, it signifies that altcoins, as a whole, are outperforming Bitcoin in terms of market capitalization, pointing to a market environment where investors are more likely to favor these alternative digital assets over Bitcoin.
Now that we have cleared out what it is, we can go deeper into the Altcoin Dominance and a variation of the dominance that is superior as well as how people can use these indicators to their benefit.
The cryptocurrency market is a vast and dynamic ecosystem that comprises a wide range of digital assets. Let's explore the different components that make up the entire cryptocurrency market, including Bitcoin, Ethereum, stablecoins, other network coins, tokens on Ethereum, and the exciting world of NFTs.
Bitcoin, the pioneer of cryptocurrencies, holds a special place in the market. Created in 2009, Bitcoin operates on a decentralized network called blockchain.
It enables secure peer-to-peer transactions without the need for intermediaries like banks. Bitcoin is often referred to as digital gold due to its store of value and limited supply.
Ethereum, launched in 2015, brought programmability and smart contracts into the crypto space. It serves as a platform for developers to build decentralized applications (dApps) on its blockchain.
Ethereum has its native cryptocurrency called Ether (ETH), which powers the network and facilitates transactions. The programmability of Ethereum has led to the emergence of various tokens and projects on its platform.
Stablecoins are a type of cryptocurrency designed to minimize price volatility. They achieve this by pegging their value to traditional assets like fiat currencies or commodities.
Stablecoins offer stability in an otherwise volatile market and can be used for trading or as a store of value. Popular stablecoins include Tether (USDT), USD Coin (USDC), and Binance USD (BUSD).
In addition to Bitcoin and Ethereum, there are other network coins that operate on their respective networks. These network coins serve different purposes within their ecosystems. For example, Litecoin (LTC) operates on the Bitcoin network and offers faster transaction confirmations.
Binance Coin (BNB) powers the Binance Smart Chain and allows users to access various features on the Binance platform.
Tokens on Ethereum represent a significant portion of the cryptocurrency market. These tokens are created on the Ethereum blockchain and serve diverse purposes. Utility tokens are used within decentralized applications, providing access to specific functionalities or services.
Security tokens represent ownership in real-world assets, such as real estate or company shares. Non-fungible tokens (NFTs) have gained popularity as unique digital assets. They represent ownership of one-of-a-kind items like art, collectibles, music, and virtual real estate.
The Altcoin dominance refers to the portion of the overall cryptocurrency market capitalization that is represented by all cryptocurrencies other than Bitcoin.
In simpler terms, it measures the collective strength and influence of alternative digital assets, excluding Bitcoin, within the entire crypto market.
To understand altcoin dominance better, we must first grasp the concept of Bitcoin dominance. Bitcoin dominance is the percentage of the total market capitalization that Bitcoin holds.
Since Bitcoin was the first cryptocurrency and has maintained its status as the largest and most widely recognized digital asset, its market dominance has historically been significant.
Track the Bitcoin Dominance Excluding Stable Coins with Daily updates!
Altcoin dominance, therefore, provides us with a complementary perspective on the crypto market. When altcoin dominance increases, it means that the combined value of all cryptocurrencies apart from Bitcoin is growing relative to Bitcoin's market capitalization.
Conversely, if altcoin dominance decreases, it indicates that Bitcoin's dominance is strengthening, overshadowing the performance of other digital assets.
Several factors contribute to fluctuations in altcoin dominance. The most notable one is the performance and popularity of individual altcoins.
When alternative cryptocurrencies experience surges in demand and adoption due to unique use cases, technological advancements, or community support, their collective value increases, impacting the altcoin dominance ratio.
Additionally, investor sentiment, market trends, regulatory developments, and overall macroeconomic conditions can influence the balance between Bitcoin and altcoins.
For example, during periods of uncertainty or market corrections, investors often flock to Bitcoin as a safe haven asset, causing Bitcoin dominance to rise.
Conversely, during periods of market exuberance and interest in innovative blockchain projects, altcoins may outperform Bitcoin, leading to an increase in altcoin dominance.
It's essential to note that the cryptocurrency market is highly volatile and subject to rapid changes, which can influence the altcoin dominance ratio on a day-to-day or even hourly basis.
Monitoring altcoin dominance is crucial for investors and analysts as it provides valuable insights into the market's dynamics and potential investment opportunities.
A rising altcoin dominance may signal the emergence of new trends and exciting projects beyond Bitcoin, while a decreasing altcoin dominance may suggest a return to Bitcoin as the dominant player in the market.
The altcoin dominance as a percentage is calculated as:
The Rise in the Altcoin Dominance is often correlated with the Bitcoin Dominance falling. It usually happens at the end of market cycles during the euphoria stage.
The rise in altcoin dominance signals that retail investors are moving liquidity in riskier assets; speculation is also very highly rampant. At this stage, being in altcoins gets riskier since it tends to signal the top of a bull market.
Since Bitcoin was the first cryptocurrency in the world, different forks of Bitcoin naturally were created afterwards. These were the first Altcoins in the crypto-space. Slowly the altcoin dominance went up from 0.
The Rise in Altcoins is also cyclical, occurring about every 4 years in sharp increases. Smaller increases also happen every now and then, usually in the consolidation phase after a bear market.
Below we can see the general parts of the altcoin dominance cycle.
There is Altcoin Dominance and the Altcoin Dominance excluding Stable coins. The Altcoin Dominance Excluding stable coins is a superior tool to use.
To understand why the Altcoin dominance excluding stable coins tool is better, we need to understand one feature with the cryptocurrency space. This is the advent of stable coins. Stable coins are backed (supposedly) 1: 1 with US dollars by several institutions, like Tether, and Circle(USDC). BUSD is another stable coin that is backed by dollars.
The problem with this is that US dollars are created out of nothing by the federal reserve bank. Theoretically, the supply of stable coins can grow exponentially, because the supply of USD can also grow exponentially.
The Purpose of the Altcoin dominance is to see how much share of the total market Altcoins have and the current trend in which altcoins are going up relative to the rest of the crypto market.
We can acquire insights from this chart, but we don’t care about stable coins because they never go up in value since they are pegged to 1 USD.
They also steal tons of market share from other altcoins and Bitcoin. To solve this problem, we can exclude all stable coins from the altcoin dominance calculations.
The Altcoin Dominance Excluding Stable Coins(ADESC) chart calculates the percentage as follows:
The altcoin Dominance respects support and resistance zones. Cryptocurrency enthusiasts can use these zones to predict with a great degree of likelihood when the altcoin dominance either goes up or down.
Crypto enthusiasts can use basic technical analysis on the altcoin dominance chart. When the altcoin dominance is at support or resistance then it can get rejected off of these zones. These rejections can be used to trade or invest successfully.
Speculators may place bets when the altcoin dominance hits support zones, by buying altcoins in an attempt to outperform the market. If the altcoin dominance bounces off of the support zone, then they make money since altcoins outperformed the market.
This depends on the altcoin however, if most altcoins move upwards except a lacking one, then the prediction could have been correct, but the choice of altcoin purchasing could have been wrong.
In other words, using the altcoin dominance excluding stable coins chart shouldn’t be used as a single indicator or tool. Crypto enthusiasts should use other indicators.
In the image below, we can see the various support and resistance lines on the altcoin Dominance chart.
The altcoin dominance excluding stable coins chart can also be used to acquire insights on which phase the current market is of the overall market cycle. The cycle is typically 4 years long in length.
It begins with consolidation, which is basically a sideways action by the majority of altcoins. It is in this phase when whales and other larger players typically pick up their bags. This is because this is the lowest point of altcoins dominance within the overall phase.
The next phase is when Bitcoin picks up steam. This phase starts after Bitcoin’s mining rewards get halved, after which Bitcoin starts its official bull-run. Altcoins lose dominance since most capital flows into Bitcoin first.
Once Bitcoin finishes its bull run, altcoins start gaining momentum. The peak of this phase is typically the end of the overall cryptocurrency bull-run.
The market cycle finishes with the bear market starting and finishing. This phase is started and ended by Bitcoin.
The strategy to use is by DCA’ing(Dollar Cost Averaging) within the yellow zone. Acquiring altcoins in the yellow zones gives the crypto enthusiast the best potential risk to reward ratio.
Deciphering the concept of the altcoin dominance demands a deep dive into the vast crypto ecosystem, a clear grasp of Bitcoin's role, an understanding of the altcoin evolution, and a keen awareness of market trends and investor sentiments.
As a key metric in the crypto world, the altcoin dominance paints a picture of the combined power of all cryptocurrencies, with Bitcoin taken out of the equation. It offers vital clues about the changing tides in the crypto market, highlighting instances when altcoins take the lead in terms of market capitalization, leaving Bitcoin behind.
While stablecoins' inclusion in this narrative is a matter of debate, the advent of the altcoin dominance excluding stable coins (ADESC) offers an effective solution.
By bypassing the distortions created by stablecoins' constant value, the ADESC provides a more transparent view of altcoin market patterns and movements.
Recognizing that altcoin dominance moves in cycles empowers investors with predictive insights to adjust their strategies and optimize returns.
Influenced by a variety of factors, the crypto market experiences periodic ebbs and flows, which, if interpreted accurately, can guide investors to better time their entry and exit points.
Utilizing strategies such as tracking support and resistance zones and deciphering market cycles can result in fruitful investments. But it's important to note that these tools and indicators, while valuable, don't guarantee success.
Armed with the right tools like the altcoin dominance chart and the ADESC, the tumultuous terrain of digital currencies can indeed be navigated skillfully.