Author: 0xEdwardyw
Bitcoin Dominance
Bitcoin Dominance is an indicator that measures Bitcoin's share in the entire cryptocurrency market. Simply put, it represents the percentage of Bitcoin's market capitalization in the total market capitalization of all crypto assets. For example, if the total market capitalization of the crypto market is $1 trillion, and Bitcoin's market cap is $600 billion, then Bitcoin's dominance would be 60%. This ratio can be understood as Bitcoin's "market share" in the entire crypto market.
Changes in Bitcoin Dominance are often used to observe the market's dominant force. When this ratio is high or continuously rising, it indicates that Bitcoin is performing better than other crypto assets. This could be because Bitcoin's price is rising faster, Altcoins are declining, or both are happening simultaneously. This is usually interpreted as "Bitcoin outperforming the overall market".
Conversely, when Bitcoin Dominance is low or continuously declining, it means that Altcoins are collectively rising more than Bitcoin, gradually "eating into" Bitcoin's market share.
In the early stages of cryptocurrency development, Bitcoin was almost the only crypto asset, so its market dominance once approached 100%. However, with the emergence of thousands of Altcoins in recent years, Bitcoin's market share has naturally been diluted. Today, Bitcoin Dominance fluctuates within a dynamic range, becoming an important reference indicator for investors and analysts to judge market trends and risk appetite.
Source: https://www.tradingview.com/markets/cryptocurrencies/dominance/
Altcoin Season
Altcoin Season refers to a period when Altcoins (all cryptocurrencies except Bitcoin) collectively outperform Bitcoin. During such a period, many Altcoins often see percentage gains that exceed Bitcoin's, presenting a collective surge. Traders often jokingly say "Altcoin Season is here," meaning their non-Bitcoin assets are experiencing significant increases.
Altcoin Season typically accompanies rising market enthusiasm and capital flowing from Bitcoin to other crypto assets. A typical Altcoin Season often occurs during bull markets, when investors, after gaining some returns from Bitcoin, start turning to mid-to-small-cap coins seeking higher return potential.
Relationship Between Bitcoin Dominance and Altcoin Performance
Bitcoin Dominance essentially reflects the relative strength comparison between Bitcoin and other assets in the crypto market, thus presenting an inverse relationship with Altcoins' overall performance. Understanding this relationship helps you better interpret how changes in market dominance might affect your investment portfolio:
When Bitcoin Dominance rises, it usually means Bitcoin's price performance is superior to most Altcoins. Sometimes this is because Bitcoin's price rises significantly while Altcoins can't keep up; other times, Bitcoin remains stable or slightly declines while Altcoins fall more dramatically. Regardless of the scenario, the result is an increase in Bitcoin's market capitalization share.
When Bitcoin Dominance declines, it indicates that Altcoins are collectively outperforming Bitcoin. This typically occurs when Altcoins are experiencing widespread increases: Bitcoin might be rising slowly while Altcoins surge dramatically, or Bitcoin might be stagnant or slightly declining while certain Altcoins continue to rise or decline less. Especially when dominance drops sharply (e.g., falling below 50% or even 40%), it's often a typical "Altcoin Season" signal. Historically, major Altcoin trends have been accompanied by significant drops in Bitcoin Dominance.
However, it's important to emphasize that changes in dominance must be viewed in conjunction with the overall market condition. Not all "dominance declines" are favorable for Altcoins. Sometimes, the decline occurs because Bitcoin is falling, and other crypto assets are also falling, just less severely. In such cases, although dominance decreases, the market is in a bear market, not a true "Altcoin Season".
The most ideal Altcoin Season typically occurs when: Bitcoin's price remains relatively stable or increases slowly, while Altcoins experience significant increases. In this scenario, the overall market is growing, but Altcoins capture a larger portion of the incremental growth, causing Bitcoin's dominance to decline.
Conversely, if Bitcoin Dominance declines during an overall market downturn (e.g., Bitcoin falls, but some funds move to stablecoins, reducing Bitcoin's market weight), this is not an Altcoin celebration but a bear market signal indicating widespread risk aversion.
A more intuitive way to understand this relationship is to observe the synchronized changes in Bitcoin's price and dominance:
Bitcoin price rises, dominance rises: Bitcoin leads strongly, Altcoins perform weakly or show no significant gains, with Bitcoin being the market's "protagonist".
Bitcoin price rises, dominance declines: A classic "Altcoin Season" signal. Bitcoin rises, but Altcoins rise even more dramatically, as investors begin chasing higher risks and potential returns.
Bitcoin price falls, dominance rises: Market risk-aversion increases, Altcoins fall more severely, with funds potentially returning to Bitcoin or flowing out of the market entirely. This is typically a bear market signal for Altcoins.
Bitcoin price falls, dominance also falls: Bitcoin performs weakly, potentially falling faster than Altcoins, or funds move to stablecoins, causing dominance to decline. This is not an Altcoin Season indicator but demonstrates overall market weakness and spreading risk-averse sentiment.
How to Determine Altcoin Season Using Bitcoin Dominance
Can Bitcoin Dominance help predict or anticipate the arrival of an "Altcoin Season"? Many traders believe the answer is yes. While it's not a perfect crystal ball, dominance trends and key levels are often used in conjunction with price trends to assess whether the market is shifting from Bitcoin to Altcoins.
One common strategy is to observe extreme values or trend reversals in Bitcoin Dominance. Altcoin Seasons typically begin after Bitcoin Dominance peaks and starts declining. The logic behind this is that Bitcoin has experienced a strong rally (dominance rises), then price slows, and market funds begin rotating into Altcoins, causing Bitcoin Dominance to drop and Altcoin prices to collectively rise.
Another usage is dynamically adjusting investment portfolio allocations. Some traders adjust their positions based on dominance trends. For example, if Bitcoin Dominance continues rising with no signs of retreat, they might prefer to heavily weight Bitcoin and be cautious about Altcoins. Conversely, if they observe dominance plateauing at high levels or beginning to decline, while Bitcoin's price remains strong, they might start positioning in quality Altcoins, getting ahead of a potential Altcoin Season.
Additionally, Ethereum's relative performance is another crucial indicator to watch. As the largest Altcoin by market cap, Ethereum's strength often signals the launch of a broader Altcoin trend. A practical method is to observe the ETH/BTC trading pair chart, which reflects "how many Bitcoins one Ethereum is worth". When ETH/BTC shows an upward trend, it means Ethereum is appreciating relative to Bitcoin, and capital is moving from Bitcoin to Altcoins. Traders typically view ETH/BTC breakouts or upward trends as leading signals that Altcoins are about to comprehensively outperform Bitcoin.
Bitcoin's Safe-Haven Attribute: Market Signals Revealed Through Market Capitalization
The question of Bitcoin's safe-haven attribute has been debated by investors for a long time. Many believe Bitcoin is "digital gold," while others argue it exhibits high volatility similar to risk assets and shows significant correlation with the Nasdaq, thus should be viewed as a risk asset.
From a price perspective, most investors might be confused. However, by examining market share and comparing it with gold, it becomes clear that Bitcoin's safe-haven attribute is hidden within. Its "safe-haven property" is not directly reflected in price, but in price fluctuations and market dominance.
In terms of attributes, Bitcoin shares one characteristic with gold: a "replaceable payment system". When fiat currency systems fail (such as during war), gold is a common international trade payment tool. Bitcoin serves a similar function. When investors lose confidence in the fiat currency system, whether due to inflation or policy uncertainty, many choose to transfer liquidity from the fiat system to "replaceable payment systems", driving long-term price increases and market share growth for gold and Bitcoin.
From an investment perspective, gold and Bitcoin are the first stop for liquidity during rate-cutting cycles and the last stop during rate-hiking cycles. When liquidity begins to be released but financing costs remain relatively high, investors tend to prefer assets with good liquidity for risk management, making Bitcoin, gold, and index futures attractive options, which leads to increased Bitcoin market dominance. During liquidity contraction, investors typically sell equity assets first, selling Bitcoin and gold last, causing their market share to rise.
Thus, we can see how Bitcoin's safe-haven attribute manifests:
- When investors lose confidence in fiat currency, Bitcoin dominance rises, demonstrating its safe-haven attribute.
- When investors enter the market due to liquidity release, Bitcoin's high liquidity and potential returns attract investor preference, causing Bitcoin dominance to rise.
- When investors withdraw liquidity from the market, Bitcoin is often the last to be sold, thus appearing more resilient, with Bitcoin dominance rising.
Moreover, from the perspective of "volatility of volatility", Bitcoin's safe-haven attribute becomes even more apparent. In the April 2025 tariff-related market drop, the VIX index rapidly rose from around 20 to near 60, while Bitcoin's volatility index (DVOL) only increased from 45 to around 63, showing lower sensitivity compared to the stock market—a key characteristic of a safe-haven asset.
Why does Bitcoin sometimes synchronize with the Nasdaq, unlike gold? This might be due to the significant role of leveraged trading in Bitcoin. Bitcoin and US stocks have easily accessible leverage, while gold's leverage is relatively difficult to obtain. During periods of abundant liquidity or significant speculative sentiment, investors often use derivatives for leveraged trading of Bitcoin and stocks. Under leverage, both deviate from fundamentals and show synchronous performance. However, as leverage is cleared and investors become rational, the distinct attributes of Bitcoin and stocks become dominant, explaining why Bitcoin gradually stabilizes and demonstrates its safe-haven attribute after synchronized declines.
