Bitcoin dominance

Crypto market update

Date: Tuesday 12th November 2024

BTC dominance

The 2021 bull cycle showed a clear pattern in Bitcoin dominance and total crypto market cap growth that could offer insights into what might happen if the market surges again.

Early in the 2020/2021 cycle, Bitcoin dominance grew to around 70% in December 2020, as BTC led the charge, rising from US$11k to US$36k. Total market cap grew alongside it, from roughly US$300bn to over US$800 billion end of 2020. This phase was classic "Bitcoin season," where BTC absorbed most of the inflows.

However, after that initial run up, dominance started to fall —from 70% down to about 45% by mid-May—as investors shifted capital into altcoins, sparking a significant “altseason.” Ethereum, for instance, soared to nearly US$4,200, and total market cap continued to rise, hitting US$2.5 trillion largely on the strength of altcoins.

By November 2021, Bitcoin hit its all-time high of around US$69,000, but dominance dropped to a cycle low of approximately 40% as altcoins and emerging sectors like DeFi and Layer 1 protocols absorbed capital. Total crypto market cap surpassed US$3 trillion, with altcoins like Ethereum claiming up to 20% dominance, marking a notable rotation from Bitcoin into broader crypto markets.

This cycle, we have seen BTC have that initial surge, raising BTC dominance and total market cap with it. If total market cap is to push to US$4tn, it is quite likely that this is driven by a decline in BTC dominance and a massive surge in altcoins.

So, if that’s how things play out, which sectors might perform well? After lagging for most of this cycle, Ethereum is finally picking up momentum. The ETFs are gaining traction, and with its native staking yield, ETH aligns well with traditional investor thinking. There’s every reason to believe ETH could see a strong run.

Solana has been one of the top-performing large-cap assets this cycle. It offers a faster, cheaper experience than Ethereum, drawing in retail investors. The SOL/ETH ratio—a measure of Solana’s performance against Ethereum—is up over 200% in the past year. Many expect this trend to continue, with SOL closing the gap on ETH and capturing a larger share of total market cap. SUI, another alternative Layer 1, has also attracted significant capital and TVL, so I wouldn’t bet against it either.

Looking beyond Layer 1s, meme coins have probably been the best-performing sub-sector of this cycle. Ignoring that momentum could be a mistake—especially as regulatory concerns are fading in the U.S. Dogecoin, for instance, has seen a strong run post-election. With its history of hitting incredible highs and its ties to Elon Musk, DOGE could be another big performer this cycle.

The other category I’m watching closely is DeFi. With regulatory concerns easing post-Trump’s win, DeFi protocols now have more room to pass value back to their tokens through fees earned by the platform. As the crypto market heats up, we’ll likely see a surge in on-chain activity, boosting performance and the fees generated by these projects. This, in turn, could increase staking yields, revenue shares, or other monetization mechanisms for token holders, strengthening the investment case for these more “fundamental” tokens.

What about the 'Bitcoin Halving?'

Seemingly overlooked in the current BTC run is that we experienced Bitcoin’s fourth halving earlier this year, a historically strong indicator for price growth. Previous cycles saw BTC returns of 8x to 100x within 12-18 months post-halving. In 2024, BTC is up about 33% in seven months post-halving, suggesting the possibility for continued upward action over the next year or so. With that said, the rate of price appreciation in BTC has been significant and bitcoin dominance is still in an uptrend. One structure to look out for in the market is if BTC cools off and starts to trade sideways, we may see some liquidity flow down the risk curve and into altcoins, which could result in some very significant returns for lower cap assets. However, rapid BTC gains bring correction risks, and if that happens 30%-50% drops in altcoins is likely.

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