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Bitcoin’s recent dominance of the cryptocurrency market has fallen below 50%, indicating a potentially unfavorable trend as retail activity increases. This change raises questions about market dynamics and investor sentiment.
Bitcoin’s dominance has been a critical indicator throughout history of whether the market is in a bull or negative cycle. As Bitcoin’s dominance grows, it usually means a defensive market where investors prefer the relatively safer alternative Bitcoin instead of altcoins.
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While a decline usually means that the investor is likely to increase their risk and often prefer investing in altcoins for potentially higher returns.
Crypto analyst Alan Santana identified three major warning signs for Bitcoin’s dominance in an X-post on Tuesday, as retail investors resumed trading after a long period of inactivity.
#BTCdominance
3 Bitcoin dominance bearish signals + Fibonacci time 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. Getting to the top of a trend… pic.twitter.com/enQAeVo5MB
— Alan Santana (@lamatrades1111) October 21, 2024
The increase in retail activity
As Bitcoin’s supremacy declines, retail investors are becoming more active. Typically, this increase in retail involvement is accompanied by a decline in Bitcoin’s market share as these investors turn to altcoins in search of better income.
The current situation is reminiscent of previous cycles, in which the increase in private interest resulted in a substantial decline in the number of consumers Bitcoin’s dominance. For example, Bitcoin’s dominance waned significantly during the 2021 bull market as new altcoins gained momentum, diverting attention from the original cryptocurrency.
General change in investor mood
Market experts say this trend is not just a one-off; it’s a sign of bigger changes in the way investors trade. 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 apps, are more flexible than Bitcoin today. This change 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 slowly started to decline with the introduction of more altcoins.
Bitcoin fell crucially during both the 2017 ICO boom and the 2021 DeFi wave, when it fell below 40% dominance. Given such historical precedents, this could represent a new phase in which altcoins outperform Bitcoin, especially as retail interest grows.
Experts believe that this could lead to the crypto markets becoming even more volatile in the future if this continues. A decline in dominance is often a precursor to speculative trading, which then causes the prices of both Bitcoin and altcoins to fluctuate wildly.
The current level of Bitcoin dominance functions as a gauge for overall market sentiment. Many speculators are reassessing their strategies as prices continue to fall.
Featured image with Dall.E, chart from TradingView
