Bitcoin in focus: dominance, cycles and institutional strength
Recently, we have observed the movement of the cryptocurrency market, particularly in the Bitcoin chartin response to the US electoral race, Trump's victory and all the events in evidence, such as the cycle of monetary easing in the US, Artificial Intelligence and productivity, in addition to conflicts in the world. All these events influence market prices in due proportion. Some of them are cyclical, while others are not.
In addition to all the risk-on/risk-off events that we see creating demand for Bitcoins, we cannot forget Bitcoin's own cyclicality, which is the halving. In the event, the mining premium drops by half every 4 years, creating shortages in the system.
It is based on this cycle that I bring to the table a reflection on the cycle of dominance between Bitcoin and Ethereum. We can see how both assets behaved in the past cycle, which can be a good indication of the end of a cycle and the beginning of another.
Market dominance is basically the percentage that an asset alone dominates of the total market capitalization. We can see in the graph that the orange line and the blue line represent the market cap of BTC and ETH, respectively. In short, it is about where the money is and how large the representation of these assets is in the total market.
Very well, understanding the halving cycle as a value generator for Bitcoin, it is to be expected that BTCUSD will gain strength. And, consequently, increase your percentage of market capitalization compared to other assets in the ecosystem. Therefore, we see that Bitcoin fluctuates with an average dominance of 55%. Meanwhile, Ethereum maintains around 16%.
In past halving cycles like 2020, we saw Bitcoin's dominance climb to between 70% and 80% before the altcoin season's push began. Meanwhile, Ethereum's dominance ranged between 20% and 10% before the altcoin season began. Could we be seeing a similar cycle again?
Bitcoin Analysis
Obviously, values of 10% or 70-80% can be considered levels of attention, and not necessarily of action. This is because prices are absolutely not correlated to dominance. We can see that Bitcoin's dominance has slowly risen for years. Meanwhile, the price was slightly consolidated. Already comparing the Ethereum chart With its dominance, there are frequent detachments that can act as traps for those less attentive.
Furthermore, Bitcoin's persistence in dominance will be a more evident reality as more long-term institutional investors buy into Bitcoin. The truth is that Bitcoin and other cryptocurrencies are young assets, which have not yet reached their full potential. Therefore, we cannot trust absolute rules or rigid signals like the vices of the traditional market.