Bitcoin's dominance is a key metric when analyzing the crypto market, and it's been ticking upwards all year.
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Key Takeaways
The world’s oldest cryptocurrency has always been its most popular.
However, this preference goes up and down depending on sentiment and events.
Bitcoin’s recent ascendancy tells us an interesting story.
Bitcoin dominance – the percentage of the total cryptocurrency market capitalization comprising Bitcoin – has been hovering around or above 50% since June 10. As of October 24, 2023, Bitcoin accounts for 53.94% of the overall crypto market cap, up significantly from 42.12% at the start of the year.
But why does that matter? Well, the degree to which Bitcoin dominates the market can tell us a lot about investor sentiment and—taking into account current events—the narratives they’re (literally) buying into.
What is Bitcoin Dominance?
Bitcoin dominance is calculated by taking Bitcoin’s market capitalization and dividing it by the total cryptocurrency market capitalization. This metric provides insight into how Bitcoin is performing relative to the broader crypto market.
Prolonged periods of 50%+ dominance signal that investor interest and capital flows are concentrated in Bitcoin compared to other cryptocurrencies.
This trend is important because it suggests Bitcoin is increasingly being viewed as a digital store of value and investment asset, rather than just a cryptocurrency. While Bitcoin was originally conceived as a peer-to-peer electronic payment system, its prolonged high dominance reflects a shift in how it is actually being used and valued.
Bitcoin’s dominance in 2023. Source: TradingView.
ETF Frenzy Has Buoyed Bitcoin’s Price
Several factors explain Bitcoin’s return to 50%+ dominance after several years below this threshold.
The prospect of the first physically-backed Bitcoin exchange-traded fund (ETF) being approved by the SEC has driven significant investor interest. The ETF would make it easier for mainstream investment funds to gain Bitcoin exposure, releasing massive pent-up demand from institutional investors.
As Paul Brody, Ernst & Young’s global blockchain leader, noted on October 23: “If you look at the people who are buying Bitcoin, they are buying it as an asset. They are not buying it as a payment tool.”
When it comes to cryptocurrency payments and transactions, stablecoins like Tether have instead taken center stage thanks to their price stability. Bitcoin’s volatility makes it work better as a store of value than a medium of exchange.
Web3 Is No Longer Exciting Investors
Demand for Ethereum (ETH) also pales compared to Bitcoin if we judge by price action this year. ETH has underperformed Bitcoin in 2023 as the crypto industry languishes in a prolonged bear market. This suggests the much-hyped concept of “Web3” has failed to capture investor imagination to the same degree as Bitcoin’s digital gold narrative.
Ethereum transactions (top) vs. Bitcoin transactions (bottom). Source: ycharts.com/
That doesn’t mean Web3 is dead and buried, merely that it remains bubbling under the surface. Unique Ethereum addresses are continuing to increase steadily, although Ethereum transactions have been on a long-term decline since 2021. Bitcoin transactions, however, have taken a wildly different path. None of these figures should surprise close observers, but they do help illustrate why Bitcoin is looking so ascendant (and chipper) right now.
Investors are buying Bitcoin as a hedge against inflation, and geopolitical tensions, and in anticipation of big market movements. They’re not using it to pay for coffee. At least not yet, anyway.
Josh has previously appeared in BeInCrypto, Vice, Quillette, Unherd and many others. He is particularly interested in privacy, policy and regulation, and web3 adoption.
