Bitcoin’s market dominance hits 4-year low amid sustained volatility

by James · October 6, 2022

Bitcoin (BTC) has long maintained its position as the most dominant cryptocurrency in terms of capital inflows driven by factors such as being the flagship digital asset. However, its dominance continues to decline as the asset battles one of the longest crypto winters.

Notably, as of October 6, Bitcoin market dominance hit a four-year low of 40%, with a capitalization of $387.85 billion. Ethereum (ETH) ranked second with a market capitalization of $166.61 billion, accounting for a dominance of 17.3%, according to CoinMarketCap data.

Major Crypto Assets by Percentage of Total Market Capitalization (Bitcoin Dominance Chart)

It is worth noting that Bitcoin’s declining market share is consistent with the asset’s continued volatility, partly triggered by prevailing macroeconomic conditions such as high inflation and interest rate hikes.

In this case, the floating rate has several implications, such as calling into question the asset’s ability to function as a store of value and hedge against inflation.

At the same time, the market cap movement partially indicates that interest in Bitcoin from retail investors appears to be low due to the loss-making aspect amid depressed activity from institutional investors. In particular, besides the volatility, the regulatory aspect is keeping institutions away at the moment.

Historically, Bitcoin’s fall in market dominance has affected the overall market and helps dictate the next price action for other assets such as altcoins. In most cases, capital leaving the Bitcoin space is channeled into altcoins positioning them for a rally. However, that is not the case as altcoins are still trading in the red zone.

During periods of market downturns, altcoins appear to be more attractive investments for those looking for quick gains.

Despite the shift in market dominance, Bitcoin has indicated signs of recovery as the asset attempts to exit the bear market. At press time, Bitcoin was trading at $20,130, extending the consolidation around the level.

The Ethereum Volatility Factor

Furthermore, a section of the market has suggested that Ethereum has a chance to overturn Bitcoin in market value. Ethereum boasts several use cases that drive elements such as decentralized finance (DeFi).

It is worth noting that the opportunity has accelerated following Ethereum’s transition to the Proof-of-Stake (PoS) protocol following the Merge upgrade. The upgrade should make Ethereum a deflationary and environmentally friendly asset, a factor that is likely to attract more institutional capital.

Finally, Bitcoin market dominance is likely to slip in the future as more assets with strong cases enter the space. For example, Bitcoin is among the assets with the least ongoing network activity, elements that are likely to affect capital inflows.

Disclaimer: The content of this page should not be considered investment advice. Investment is speculative. When you invest, your capital is at risk.