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Bitcoin gains momentum; What does this mean for cryptocurrencies?

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While Bitcoin (BTC) and the rest of cryptocurrencies are in the doldrums, there are some notable signals that the situation is changing. Are you wondering what those signals are? 

Bitcoin price at the time of writing is hovering around $20,000 (Source: Bybit)

Bitcoin Domination.

Indeed, BTC market dominance is on the rise, topping 46% this week. This shows that money is moving away from altcoins and towards the perceived safety of the original crypto asset. This trend reveals a series of interesting signals about the crypto market.

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But first, “Bitcoin dominance is the ratio of Bitcoin’s market capitalization to the total market capitalization of the entire crypto market,” according to Bybit Learn. In other words, it shows the amount of money in BTC relative to the rest of the crypto market. For example, if the entire crypto market has a market cap of $1 trillion and BTC has a market capitalization of $500 billion, then BTC shares half of the total market cap, placing the dominance of Initial cryptocurrency is 50%.

Historically, BTC dominance increased in “bear” markets because its price fell more slowly than the rest of the market. Traders move money from altcoins to BTC because if BTC corrects, say 30%, then altcoins will suffer a much deeper correction. This strategy allows traders to accumulate more altcoins when the market turns.

However, the historical data on this metric is thin: Up until 2017 and at the start of the ICO bubble, BTC spent most of its time dominating the market over 90%. After 2017, we saw the rise of altcoins, especially Ether (ETH), vying for market share.

In 2017, investors saw altcoins earn much larger returns than BTC and move capital away from the original asset to deploy elsewhere in the cryptocurrency. That year, BTC dominance dropped from 90% to 36% while altcoins experienced a massive bull run.

After the ICO bubble burst, BTC dominance increased in the next bear market. People sold their falling altcoins and moved back to BTC.

Interestingly, in 2020, BTC has outperformed altcoins – reaching an all-time high of $20k in December with 12% market dominance. In 70, however, BTC gave 2021% of its market dominance to altcoins as they started to appreciate.

This represents the sentiment of the cryptocurrency market. When things go bad and prices drop, people move money to BTC. We saw this recently: When Terra collapsed, BTC dominance increased, even as Luna Foundation Guard (LFG) sold large amounts of BTC on the open market in an attempt to save the peg. of TerraUSD (UST).

A prolonged bear market will be much more difficult for altcoins, as they have a smaller market cap and engender less confidence from investors. BTC thus benefits from the “flight to safety” narrative. The 2020 example is instructive as BTC's rally initially outpaced altcoins before giving way to the so-called "altcoin season".

We can speculate that the 2020 phenomenon is due to investors' caution. After the ICO bubble burst in 2017, it was followed by a protracted bear market in which most altcoins were destroyed. When sentiment is positive again, the first money flows into BTC, as it has proven that it can survive tough times. Then when BTC started to slow down, the money moved into altcoins to earn more.

Today, as the stock and crypto markets enter a bearish phase, we are witnessing a constant flight to gain quality. “This could see [BTC] dominance rebound to 60%,” Twitter user IncomeSharks said in a recent tweet. “There’s a good chance we could see money leave altcoins and start coming back into BTC.”

As BTC dominance has been on the rise since January, its continued rise shows that the bear market is working its way through the system – and there will be better times on the downside. before.

Author: Nathan – Bybit's Lead Tech Writer

About Bybit

bybit is a cryptocurrency exchange founded in March 3, providing a professional platform where crypto traders can find an extremely fast execution engine, excellent customer service great and multilingual community support.

Bybit provides groundbreaking spot and derivatives trading services, mining and staking products, NFT marketplace and API support to retail traders and institutional customers around the world, and is committed to strives to become the most trusted platform in the emerging virtual asset segment.

Bybit is proud to be a partner of the Formula 1 (F1) racing team, Oracle Red Bull Racing, eSports teams NAVI, Astralis, Alliance, Virtus.pro and Oracle Red Bull Racing Esports, and the football teams of association Borussia Dortmund and Avispa Fukuoka.

For more details, please visit: https://www.bybit.com/

For updates, please follow Bybit's social media platforms on:

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