Introduction: Bitcoin and Altcoins - Dominance in the Digital Age

In the late 2000s, the financial landscape saw a shift as an anonymous entity using the pseudonym Satoshi Nakamoto unveiled Bitcoin. Introduced through a 2008 whitepaper, Bitcoin was pitched as a decentralized digital currency, devoid of the traditional banking middlemen, ensuring secure and legitimate transactions through a blend of mathematics and computer science.

By 2009, the first Bitcoin was mined, marking the commencement of a paradigm shift in understanding and utilizing money, with Bitcoin at its forefront.

As Bitcoin's decentralized approach gained traction, it set off a cascade of innovations in the digital currency realm. This momentum led to the birth of "altcoins" like Litecoin in 2011, which, while inheriting core tenets from Bitcoin, introduced variations like quicker transaction times and different security measures.

Over the next few years, the cryptocurrency ecosystem flourished, introducing novel platforms like Ethereum in 2015, which enabled the creation of decentralized applications and auto-executing "smart contracts."

The cryptocurrency domain, initially dominated by Bitcoin, soon expanded to accommodate a plethora of alternative digital currencies, commonly referred to as "altcoins." These altcoins, including notable ones like Binance Coin and Cardano, added unique functionalities and contributed to the dynamic world of digital currencies.

The concept of "altcoin dominance" encapsulates the collective market value of these altcoins in relation to the entire crypto market, reflecting their combined influence in the vast digital currency spectrum.

Chart Insights: How Bitcoin Price Swings Affect Altcoin Dominance

It is no surprise that Bitcoin volatility affects Altcoins in both positive and negative manners. We can use Bitcoin’s volatile moves of the past to predict how the altcoin dominance might move in the future when Bitcoin decides to move violently.

There are two main times when Bitcoin Price swings affect the Altcoin Dominance Depicted below.

Raging Bitcoin Bull Markets and the Altcoin Dominance

Bull markets very often cause the altcoin dominance to crash transiently, as Bitcoin becomes the hot commodity. During this time, altcoin:BTC pairs like ETH:BTC crash, almost all altcoins crash in value against BTC. Though in bull markets it's very likely that most assets appreciate against the US dollar.

Subsequently, the altcoin dominance also crashes. Once BTC has exhausted the majority of its fuel, it either goes sideways or starts its decline, typically at the top of the bull market.

Usually during this period, liquidity flows from Bitcoin to Ethereum and from Ethereum into more speculative cryptocurrencies, which we refer to as “Shitcoins".

These are altcoins that have a much lower market cap and are pretty much valued based on speculation. Altcoins of this type are subject to incredible risk and are many times more volatile than Bitcoin.

When Bitcoin goes up or down in violent manners, these Altcoins move in greater orders amplifying potential risk/reward.

Down below we can see how Bitcoin’s volatile movements affect the Altcoin Dominance.

Altcoin Dominance in a Bullmarket VS in Bearmarket Catalyst

Depressive Bitcoin Bear Markets and the Altcoin Dominance

Bear markets tend to last 8 to 12 months in length. During the beginning and ending of the bear market, Bitcoin tends to drop in a volatile manner. As Bitcoin drops, capital from altcoins flows into Bitcoin. This happens since investors tend to lower their exposure to riskier assets.

As previously mentioned, altcoins are much more risky assets typically purchased on speculation. When the crypto is in a bear market, capital flows from altcoins to Bitcoin. Overall, this is projected in the altcoin dominance. The Altcoin dominance drops as a result, in bear markets.

After the bear-market is near end, the altcoin dominance usually goes sideways and upwards as investors and speculators increase their risk appetite.

The image below illustrates the altcoin dominance dropping in bear markets only to go sideways thereafter.

Altcoin Dominance in a Bullmarket VS in Bearmarket Catalyst

Investor Breakdown: The Correlation Between Bitcoin Valuation and The Altcoin Dominance

Peak of the Bitcoin Bull Run and Altcoin Dominance

There are clear correlations between the Bitcoin price and the Altcoin Dominance.The first of these is a rally by altcoins right as Bitcoin has finished its bull run.

As most of the liquidity is getting pushed into Bitcoin during a bull market, liquidity starts flowing into Ethereum and into altcoins. This in turn pushes the altcoin dominance upwards.

In 2017, the altcoin dominance (excluding stable coins) went from about 29% to a staggering 64%! This is an increase of about 120%!

The Altcoin Dominance doubled again in the bull-market of 2021.All together, we can see a correlation between Bitcoin finishing its bull-run and the Altcoin Dominance going crazy upwards.

Bitcoin Bull Run Peak correlation with Altcoin Dominance

Bitcoin Flash Crashes Leads To Altcoin Dominance Depression

During Bitcoin flash crashes, we can see another correlation between the bitcoin price and the altcoin dominance excluding stable coins.

As Bitcoin plunges in minutes, investors and traders rush to sell their altcoins to remove their extra risk exposure due to holding altcoins. Most altcoins are speculative in nature, their fair value is generally not what the market thinks it is.

As the Bitcoin flash crashes, altcoins drop in price even more. Investors move capital from altcoins and into Bitcoin. The altcoin dominance drops in reaction.

In March 2020, Bitcoin went down 50% in a single day, this was due to the stock market going down. Altcoins like Ethereum went down even more, 60-70%.

The correlation between Bitcoin Flash crashes like these and the Altcoin Dominance dropping subsequently can be visible in the image below.

Bitcoin Flash Crashes VS Altcoin Dominance

Why Exclude Stable Coins? A Clearer View of Pure Altcoin Influence

There are 3 main types of cryptocurrencies. Bitcoin – the main influential cryptocurrency, Altcoins like Ethereum or BNB and Stable Coins. Stable coins are supposed to and are assumed to be backed 1:1 with real US Dollars held by a custodian.

This custodian is typically a bank and a 3rd party company. The issue with stable coins is that their value is 1 USD. Their value almost never goes up or down(with a few exceptional times).

Almost nobody is trying to invest in stable coins (with a few exceptions). Thus, the stable coin dominance doesn’t have any concern to us with regards to the altcoin dominance.

In other words, by trying to utilize the altcoin dominance we want to see how much market share all altcoins combined have. This is in an attempt to see if altcoins all together are appreciating, losing value, or are being outperformed by BTC.

Since Stable Coins don’t gain value, combining them with the rest of the altcoins creates an inaccurate depiction of the actual altcoin dominance.

Take for example, one scenario, where altcoins stay stagnant meanwhile, Bitcoin goes up 5%. The probable depiction of the altcoin dominance is that it is going to go down as BTC gains market share.

If the stable coins representing 10% of all the crypto market cap double in a few months, then the altcoin dominance would increase significantly. But in reality, altcoins stagnated.

Including stable coins can significantly alter the actual representation of the altcoin dominance. This can lead to bad investment or general business decisions in the crypto space.

The Stable Coins That are Excluded in this Altcoin Dominance Chart

This Altcoin Dominance chart excludes many Stable Coins to give you a more precise illustration of the real Altcoin dominance.

Major Stable Coins Excluded

  • USDT
  • USD Coin(USDC)
  • DAI
  • BUSD
  • FRAX
  • True USD(TUSD)
  • Terra Classic USD(USTC)
  • PAX Dollar(USDP)

Other Stable Coins Excluded

  • USDD
  • Gemeni Dollar(GUSD)
  • FRAX
  • USDJ
  • Liquidity USD(LUSD)
  • Stasis Euro(EURS)
  • Venus USDC(vUSDC)

Other Stable Coins Excluded

  • VAI
  • sUSD
  • sUSD
  • Steem Dollars(SBD)
  • Venus USDT(vUSDT)
  • USDK
  • Euro Coin(EUROC)
  • HUSD
  • Reserve(RSV)
  • Celo Euro(CEUR)
  • And Many More!